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Intercreditor Agreement Drafting: Key Terms, Drafting Tips, Lawyer Help

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What is Intercreditor Agreement Drafting?

An intercreditor agreement is a contract between two or more creditors who have the same borrower. It’s a private agreement that outlines important terms for their working relationship, such as which party receives payment first and what to do if the borrower defaults on payments.

One of the main purposes of an intercreditor agreement is to prevent competing creditors from pursuing separate legal actions against a borrower.

If you need an intercreditor agreement, read the rest of this article to learn what information should be included in it and how to draft it. We’ll also explore why it’s beneficial to hire a qualified lawyer for assistance with the intercreditor agreement drafting process.

What are Key Terms to Include in an Intercreditor Agreement?

An intercreditor agreement usually contains the following essential information:

  • Seniority. This ranks the borrower’s debts in importance, giving one creditor preference over another.
  • Repayment. This outlines which creditor is prioritized with payment. It can also include how repayments to junior lenders could be prevented in the case of borrower defaults.
  • Collateral. The agreement should include details about the collateral securing the lenders’ loans. If there’s a default, the agreement should specify how collateral will be distributed.
  • Information. The agreement should specify how financial and other details are shared between parties.
  • Release. This explains conditions for how creditors can be changed and released from the agreement terms.
  • Dispute resolution. The agreement should specify the process for resolving conflicts, such as mediation or arbitration, to save all parties time and resources.

What are Tips for Drafting an Intercreditor Agreement?

When drafting an intercreditor agreement, there are important things to consider.

Consider Future Financing

Think about what the borrower’s future financing needs will be. This can make the agreement more flexible, such as by helping them to gain additional financing without having to change the agreement.

Detail Default Processes

It’s important to define the rights and duties of all parties involved in the agreement so that everyone knows what’s expected of them if there is a default. This should specify how rights are enforced, such as how creditors can pursue other remedies.

Define Payment Priority

It’s important to specify which creditor will be paid first and how the ranking will work. Avoid anything vague about the payment ranking that could result in confusion or disputes in the future. For junior lenders, you should clarify when borrowers are allowed to pay them.

Plan Ahead for Borrower Bankruptcy

Your agreement must explain what happens in the worst-case scenario, such as if the borrower goes bankrupt. This section should specify how lenders will deal with the situation, such as by clearly stating which lender will get paid.

Control Changes Made to the Agreement

You should prevent one lender from making changes to their loan, such as increasing the amounts owing, if these will negatively impact the other lenders in the agreement. Include amendment and modification restriction clauses that restrict this behavior to protect all lenders’ interests.

Do You Need a Lawyer for Intercreditor Agreement Drafting?

It’s advisable to hire a lawyer to draft your intercreditor agreement because this document contains important information about rights between creditors and it can have significant financial or legal consequences if it contains mistakes.

A lawyer will conduct the following activities during the contract drafting process:

  • Consider your specific deal. Lawyers will evaluate who the lenders are, how much they are owed, and more.
  • Establish who will get paid first. This creates a fair and balanced contract.
  • Set rules for security or collateral. A lawyer explains and clarifies which lender has rights over the borrower’s security.
  • Decide who can take action if the borrower defaults. This makes the agreement clear to prevent disputes.
  • Draft clear and fair payment terms. They’ll specify when payments are made to lenders and how recovered money is divided.
  • Consider and assist with challenging situations, such as if the borrower defaults.
  • Check that the intercreditor agreement is aligned with all relevant documents and laws.
  • Review an intercreditor agreement you already have drafted, giving you peace of mind that all its terms are clear, fair to all parties, and free of hidden risks.

Where to Find a Lawyer for Intercreditor Agreement Drafting

If you need to hire a lawyer to draft an intercreditor agreement from scratch, you don’t have to worry that it will take time. Online legal platforms make it easy to access a network of lawyers who have contract-drafting experience.

ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers. All lawyers on the platform have years of experience in contract drafting and review.

If you want to ask a lawyer on the platform to draft your intercreditor agreement, here are the easy steps to follow online:

  1. Go to the ContractsCounsel marketplace.
  2. Post your project for free. Include a few details to help you find the most suitable lawyer, such as the type of debt owing.
  3. Wait for bids. Instead of searching for a lawyer, you’ll receive multiple bids from lawyers directly on the platform.
  4. Review the lawyers’ profiles. You get to choose the lawyer you want to work with. Go through the platform’s extensive lawyer data, which includes their location, client ratings for previous projects, expertise, and credentials.
  5. Connect with a lawyer you think is best suited to your requirements and hire them to draft your intercreditor agreement for a flat fee.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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