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What is an Intercreditor Agreement? A Comprehensive Legal Guide
Definition & Meaning
An intercreditor agreement is a legal document that outlines the relationships and priorities among multiple creditors who have claims against a borrower. It specifies the lien positions of each creditor, detailing their rights and responsibilities. This agreement is commonly used in financing situations where various lenders need to establish their respective rights to payments and collateral. It may also include provisions that allow a second lien lender to buy out the claims of a first lien lender under certain circumstances, such as if the borrower files for bankruptcy.
Table of content
Legal Use & context
Intercreditor agreements are primarily used in the context of corporate financing and bankruptcy law. They are essential in transactions involving multiple lenders, as they clarify each party's rights and the order of payment. These agreements can help prevent disputes among creditors and ensure that all parties understand their positions. Users can manage intercreditor agreements through legal templates provided by services like US Legal Forms, which offer resources drafted by experienced attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company secures a loan from a first lien lender and later seeks additional financing from a second lien lender. An intercreditor agreement is established to clarify that the first lien lender will be paid before the second lien lender in the event of liquidation.
Example 2: A borrower files for bankruptcy, triggering a buy-out option in the intercreditor agreement. The second lien lender exercises this option to acquire the first lien lender's claims at par value, allowing them to take priority in the bankruptcy proceedings. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Specific requirements for lien documentation and enforcement.
New York
Stricter regulations on the buy-out provisions in intercreditor agreements.
Texas
Unique statutes regarding the priority of liens in bankruptcy cases.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Common misunderstandings
What to do if this term applies to you
If you are a creditor or borrower involved in a situation that may require an intercreditor agreement, consider the following steps:
Assess your position and the potential claims of other creditors.
Consult with a legal professional to draft or review the intercreditor agreement.
Explore US Legal Forms for templates that can help you create a tailored agreement.
Be proactive in discussing terms with other creditors to avoid disputes.
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