Intercreditor agreements are intended to prevent shared collateral from becoming a battleground in a distressed credit restructuring or bankruptcy. Creditor groups benefit by defining their relationship with each other before, rather than after, a debtor encounters financial difficulty. Historically, these agreements have been designed to enable senior creditors to control the disposition of collateral and to receive payment in full ahead of junior creditors, but well-organized junior creditors can also use them to gain valuable rights.
Last year we wrote in this column about the model first lien/second lien intercreditor agreement drafted by a task force of the Committee on Commercial Finance of the American Bar Association’s Business Law Section.1 We noted the growing importance of the second lien lender market and the objective of such task force to address the commercial finance industry’s need for greater clarity and certainty in intercreditor agreement provisions.2
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