Interconnection arrangements are used in a large number of financial transactions to determine the respective rights and remedies of two or more creditors in credit facilities made available to a joint borrower. Interconnection agreements are not standardized and their scope varies widely. Interconnection agreements may include provisions on the subsity of payments, terms of cessation of payment and other rights and remedies of creditors which do not involve guarantees. These payment subordinations are generally found, for example, in the case of unsecured mezzanine financing. However, in the case of secured financing transactions, the interconnection agreement may also regulate the rights and priorities relating to each creditor`s rights of pledge over the borrower`s assets, and this is where the Task Force has focused its efforts. When the second collateral market grew, the advisor to the first pawn lender devised various forms of substantially similar intercreditor agreements on the first pledge right/second pledge right. In the initial years of the second collateral market, the second collateral lender generally subordinated virtually all of its rights as a secured creditor to the rights of the first pledge creditor until the first pledge creditor was paid in full — the so-called “second silent”. Surprisingly, there were poorly published guidelines on the issues that consultants should consider when developing or revising an inter-credit agreement, and participants relied heavily on “market practices”. However, it gradually became apparent that the market had only limited experience of the effect of these provisions following a default by the borrower or the opening of bankruptcy proceedings. As the name suggests, an inter-creditor agreement is an agreement between different creditors of a common borrower that defines the relationship between creditors and often deals with issues such as the priority of payments, the subordination of rights of pledge and deeds in the event of bankruptcy of the borrower. Over the past twelve years, this section has repeatedly addressed the issues of intercreditors and sub-ordination.1 During this period, the institutional market for second-pledge rights and the corresponding importance of intercreditor agreements have developed considerably.

Today we discuss the model of the intercreditor agreement recently concluded by an American Bar Association task force for the negotiation of intercredit agreements between a lender or consortium of loans that guarantee commercial loans with a priority pledge right on certain guarantees (First Lien Loans) and a lender or loan consortium that has a second priority pledge right on the same guarantees (Second pledge) 2 Please register or register to read this full article. ALM content plays an important role in your work and research, and now through this LexisNexis alliance® give you access to an even more comprehensive collection of legal content. If you have any questions, call 1-877-256-2472 or contact us at [email protected] The American Bar Association`s Business Finance Committee, ABA Section of Business Law, has just released the “Report of the Model First Lien/Second Lien Intercreditor Agreement Task Force”. Over the past five to eight years, the use of “Second Link” structures in syndicated financing operations, primarily guaranteed by the institutions, has increased. . . .