Overview

An intercreditor agreement is a practical roadmap lenders use to avoid chaos when multiple creditors have claims on the same borrower or assets. Rather than relying solely on default statutory priority rules (like UCC Article 9 or bankruptcy law), lenders negotiate predictable rights—who gets paid first, who controls enforcement, and when junior lenders may act.

In my practice working on leveraged and real estate financings, clear intercreditor language materially reduces disputes and shortens workout timelines.

Key ways an intercreditor agreement coordinates lender claims

  • Priority of claims: Specifies which class of debt (senior vs. junior) has first claim on proceeds and collateral.
  • Subordination: Documents how junior debt is subordinated to senior debt for payments and liens.
  • Enforcement and standstill provisions: May require junior lenders to forbear from enforcing remedies until senior lenders finish enforcement or a trigger occurs.
  • Control and step-in rights: Often gives senior lenders control over enforcement decisions or the right to direct a workout or sale.
  • Payment waterfall: Defines order and conditions under which cash or collateral proceeds are distributed.

Typical provisions to review closely

  • Scope of collateral covered and perfection requirements (e.g., filings under UCC Article 9).
  • Triggers for senior enforcement and any interim standstill for juniors.
  • Intercreditor notice, voting, and amendment rules (who must consent to change the agreement).
  • Carve-outs and protections for junior creditors (e.g., limited ability to pursue non-collateral remedies).
  • Remedies after borrower insolvency and whether the agreement preserves rights in bankruptcy.

Real-world example

When a real estate borrower entered distress, an intercreditor agreement I helped negotiate allowed the senior lender to lead a controlled foreclosure while giving junior lenders a transparent recovery split and limited objection rights. That clarity avoided costly litigation and preserved more value for all creditors.

Who uses intercreditor agreements

Common users include syndicated loan participants, mezzanine and junior lenders, mortgage lenders in layered financings, and holders of different secured instruments in acquisition or project finance deals.

Common mistakes and red flags

  • Relying on boilerplate language without confirming which collateral or entities are included.
  • Missing perfection steps (failure to file UCC financing statements) that undermine agreed priority.
  • Vague enforcement triggers that lead to disputes over when juniors can act.
  • Failing to define treatment in bankruptcy or restructuring—bankruptcy law can alter negotiated expectations.

Practical tips for borrowers and lenders

  • Have counsel with secured-lending experience review intercreditor terms early.
  • Map all existing liens and security interests before signing.
  • Negotiate clear amendment and consent procedures—changes frequently require unanimous lender approval.

Further reading and resources

Professional disclaimer

This article is educational and reflects general practices as of 2025. It does not constitute legal or financial advice. Consult qualified counsel before relying on or drafting an intercreditor agreement.