May 14, 2024 - Earlier this month, the LSTA and the American Bar Association jointly published a Form of First Lien / Second Lien Intercreditor Agreement (the “Form”). This Form is the result of the collaboration of the LSTA’s Primary Market Committee and the ABA’s Business Law Section’s Commercial Finance Committee (ComFin Committee).

The ComFin Committee tackled the enormous task of producing a Model Form of Intercreditor Agreement (the “Model Form”) and published it in 2010. Until then, there really had been no standard form in the market because those agreements varied so widely depending on the applicable deal terms. The ABA’s Model Form reflected, as far as possible, market practice at that time and also tried to protect the interests of both first and second lien lenders. The goal of the LSTA’s Primary Market Committee and the ABA’s ComFin Committee this time was to refresh the Model Form and include the knowledge and insights of those who have worked with it and other intercreditor agreements in their deals over the past 14 years.

Intercreditor agreements are incredibly complex instruments that govern the relationship between two groups of secured parties—in our Form, first lien lenders and second lien lenders. If the borrower defaults or files for bankruptcy, the agreement sets out the rights of the parties to the collateral of the borrower. The revised Form addresses the relative priorities in that shared collateral, enforcement of that collateral, issues that may arise in a bankruptcy proceeding, the releases of collateral, as well as other ancillary matters.  One of the areas which was updated was to make the form a multi series style intercreditor agreement which is commonly found in today’s market.  In the past, if you had a single series first lien and second lien it would be between one first lien collateral agent representing its own secured parties and a second lien collateral agent.  Now, however, with the ability of a borrower to incur incremental debt that can be secured through a separate facility the intercreditor documentation has had to follow suit to allow for more than one credit facility at any given priority level.  As such, most intercreditor arrangements in the US today are drafted as a multi series style intercreditor agreement.  Unlike a “single series” which is a bilateral agreement between two series of secured parties (typically, their agents), the “multi series” contemplates any number of series of secured debt (theoretically, this can be infinite).  Multi series features include mechanics to add additional series of secured debt, typically via a joinder and/or debt designation.

The Chair and Vice Chairs of the Syndications and Lender Relations Subcommittee of the ComFin Committee, Maria Barclay of Practical Law, Christian Fundo of JPMorgan Chase, and Hilary Sledge-Sarnor of Greenberg Traurig, LLP, all of whom are also active LSTA members, have done an excellent job leading their ComFin subcommittee through commenting on the drafts of the Form.

Many thanks to Brian Rock of Latham & Watkins for his excellent drafting of the Form and advising us on this project.  During last year’s summer series, Brian presented an excellent webinar on intercreditor agreements.  If you are new to intercreditor agreements or in need of a refresher, you are encouraged to listen to Brian’s webinar.

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