Quick overview

An intercreditor agreement (ICA) is a legal contract among multiple lenders that establishes each lender’s relative rights to a borrower’s cash flows and collateral. These agreements are common in syndicated loans, real estate developments, leveraged buyouts, mezzanine financings, and situations where senior and subordinated lenders share security interests. In my practice working with middle‑market borrowers and sponsors, ICAs are where many practical problems either get solved or created — depending on how clearly the document allocates rights and remedies.

Sources and further reading: see the FinHelp article What a Loan Intercreditor Agreement Covers and Why It Matters and our guide on Intercreditor Agreements in Multi-Lender Deals.

Why borrowers should care

  • Priority determines recovery: the priority rules in the ICA decide which lender is first to seize collateral or claim cash in a default. That affects how much recovery is available to each lender — and how much risk the borrower’s equity holders face.
  • Enforcement coordination affects timing: ICAs often include “standstill” or “no action” periods that can delay enforcement, which changes the economics and timing of workout negotiations.
  • Consent and trimming rights can limit flexibility: provisions may require consent from one or more lenders for asset sales, amendments, or refinancing, which can impede refinancing or restructuring attempts.

In short, intercreditor agreements don’t change the borrower’s payment obligations, but they shape the path lenders take if something goes wrong — and that path directly affects the borrower’s options in distress.

Key concepts borrowers will see in an ICA

  • Priority (senior vs. subordinated): Identifies which debt is senior and which is junior, and whether the senior debt has a first lien on specific collateral.
  • Payment waterfall: The order in which collections and proceeds are distributed among creditors and equity.
  • Standstill/no‑action period: A time during which a subordinated lender cannot take enforcement action while the senior lender exercises remedies.
  • Subordination: Contractual agreement that some creditors rank below others for payment or collateral claims.
  • Consent rights and co‑ordination: Rules requiring lenders to agree before certain actions (accelerations, collateral releases, amendments).
  • Intercreditor triggers: Events (like cross‑default) that change lender rights.
  • Carve‑outs and exceptions: Amounts or remedies that a subordinated lender may preserve despite subordination (for example, limited indemnities or fees).

How intercreditor agreements typically operate

  1. Establish the hierarchy: The ICA labels debt as senior, mezzanine, or subordinated and assigns liens to particular collateral. Senior lenders get affirmative rights to enforce, and subordinated lenders accept a lower priority.
  2. Set the remedies flow: The agreement defines who can accelerate, foreclose, or take assignment of collateral and under what conditions. Senior lenders often have the exclusive right to enforce for a period before a junior lender may step in.
  3. Protect the senior lender: Provisions often block junior lenders from taking enforcement steps, receiving collections, or receiving collateral proceeds until senior debt is paid in full (or until specified carve‑outs are triggered).
  4. Protect the junior lender’s economic interest: The ICA may grant the junior creditor certain protections — for example, periodic reporting, auditing rights, or the ability to block corporate actions that prejudice their economic recovery.
  5. Provide default and bankruptcy rules: ICAs include clauses that address what happens during bankruptcy or insolvency, consistent with applicable law and common practice.

Common borrower impacts and examples

  • Collateral release hurdles: Borrowers selling an asset may need both senior and junior lender consent to free the collateral. That can slow closings and reduce sale proceeds or force escrow arrangements.
  • Refinancing constraints: ICAs often contain “most favored” clauses or restrictions that make early refinancing harder unless all secured parties agree to terms that preserve priority.
  • Longer workouts: Standstill terms give senior lenders time to workout or foreclose, which can be beneficial or harmful depending on borrower goals. A slower process can reduce forced liquidation risk but may limit a borrower’s ability to negotiate a fast sale.

Example (composite, based on client work): I worked on a mixed‑use development where a regional bank provided senior construction financing and a private debt fund provided subordinated financing tied to expected future cash flow. The ICA required the subordinated fund to stand down during a 180‑day enforcement period and conditioned collateral release on satisfaction of senior loan milestones. Because those terms were negotiated and clearly documented up front, the borrower avoided litigation and had a defined path to refinance once the project stabilized.

Negotiation tips for borrowers

  1. Limit no‑action periods: Shorten standstill windows so junior lenders cannot sit on their hands indefinitely, and build in clear trigger events that permit junior enforcement if the senior lender fails to act.
  2. Narrow the collateral scope: Where possible, negotiate a narrow description of collateral subject to the ICA so you retain flexibility to sell or free assets not essential to senior lenders.
  3. Carve out routine operating cash: Arrange that certain predictable operating receipts are excluded from the senior cash sweep to keep day‑to‑day operations running.
  4. Define cure rights and notice: Require clear notice and cure opportunity before acceleration and give borrowers a realistic timeframe to remedy technical defaults.
  5. Require commercialization or disposal timelines: If lenders want rights to seize assets, require an agreed disposal process and timelines that prevent lengthy, value‑destroying delay.
  6. Negotiate fees and monitoring costs: Avoid open‑ended indemnities or monitoring fees that can erode project cash flow.
  7. Get legal and commercial advice early: ICAs combine legal priorities with commercial economics; involve counsel and a financial advisor familiar with multi‑lender structures before signing.

In my experience, lenders expect concessions; what matters is where you accept them and why. Tradeoffs that preserve operational flexibility while giving senior lenders comfort are often the most practical path.

Red flags borrowers should watch for

  • Blanket cross‑collateralization across all assets without carve‑outs for ordinary course operations.
  • Unlimited or undefined standstill periods that prevent junior enforcement indefinitely.
  • Broad borrowing base or cash dominion provisions that divert operating cash to a control account with tight release conditions.
  • Overbroad consent regimes requiring junior lender approval for routine actions (leasing, minor asset sales).
  • Vague enforcement standards that allow the senior lender to accelerate on subjective grounds.

If you spot these, require specific limits, objective triggers, and sunset clauses.

Checklist before signing an ICA

  • Who is senior and who is subordinated? Confirm labels and liens.
  • Which assets are subject to the agreement? Insist on a precise schedule.
  • What triggers enforcement and what is the timeline? Look for objective triggers and reasonable cure periods.
  • Are there carve‑outs for operating needs or professional fees? Preserve minimal operating liquidity.
  • What consents are required to refinance, sell assets, or amend the loan? Limit the scope.
  • How are proceeds distributed after enforcement? Confirm the waterfall and fee priorities.
  • How does bankruptcy law affect the agreement? Get counsel to map ICA provisions to insolvency rules.

Legal and regulatory notes

Intercreditor agreements are private contracts governed mainly by state contract and secured‑transactions law (e.g., the Uniform Commercial Code for personal property liens) and by bankruptcy code principles when a borrower becomes insolvent. While federal agencies like the Consumer Financial Protection Bureau (CFPB) focus on consumer credit practices, ICAs are more common in commercial settings; however, related borrower protections and disclosure rules can intersect with regulatory guidance in some transactions (see CFPB guidance at https://www.consumerfinance.gov). Securities‑related questions in syndicated or structured financings can involve the U.S. Securities and Exchange Commission (SEC) or market rules (see https://www.sec.gov).

Frequently asked practical questions

  • Can an ICA be amended? Yes — amendments usually require consent from affected lenders; the original agreement will specify majority thresholds or unanimous consent when material rights change.
  • Will an ICA protect me as a borrower? Indirectly. ICAs mainly allocate lender rights; a well‑drafted ICA can reduce litigation risk and speed workouts, which benefits borrowers, but it does not remove your repayment obligations.
  • Are ICAs negotiable? Absolutely. Borrowers and their sponsors should negotiate priorities, carve‑outs, and timelines — especially when junior capital is involved.

Where to get help

Professional disclaimer

This article is educational and does not constitute legal, tax, or investment advice. Consider this general information based on practice experience; always consult an attorney or financial advisor before signing intercreditor or loan documents.

Selected authoritative resources

  • Consumer Financial Protection Bureau (CFPB): https://www.consumerfinance.gov
  • U.S. Securities and Exchange Commission (SEC): https://www.sec.gov
  • For secured transactions and priority rules, consult your jurisdiction’s version of the Uniform Commercial Code (UCC).