Drafting Intercreditor Agreement

This webinar discusses critical issues related to the development and negotiation of standstill clauses in intercreditor agreements from the perspective of senior and junior collateral creditors. Topics covered by the programme include, inter alia, the extent, nature, duration and commencement of the impasse, the end of the impasse, the communication of older pledges to the creditor and the restoration or reconfiguration of the standstill period. Be wary of loose wording and be as specific as possible about the listed rights that are affected by the agreement. Compare BOKF NA v. JPMorgan Chase Bank NA (In re MPM Silicones LLC), Adv. No. 14-08247 (Bankr. S.D.N.Y. Oct. 14, 2014) and Wilmington Trust NA v. JPMorgan Chase Bank NA (In re MPM Silicones LLC), Adv. No. 14-08248 (Bankr.

S.D.N.Y. Oct. 14, 2014), with In reick Erson Retirement Communities LLC, 425 B.R. 309, 313 (Bankr. N.D. Tex. 2010) (discussion of an intercreditor agreement that contained “very strict language that prohibits the youngest from taking almost all measures against the general interests of the party primarily insured”). Key Takeaway: “Section 510(a) does not allow for the waiver of voting rights under paragraph 1126(a)” The intercreditor agreement allowed the holder of an older right of pledge to choose the claim of a younger consignee holder. While this decision is part of the recent trend of insolvency courts to rigorously enforce intercredit agreements, this decision highlights the risks that priority lenders may face when attempting to enforce their intercredit agreements against younger lenders in bankruptcy and insolvency situations. To the extent that interconnection agreements, subordination agreements and other agreements between lenders are not elaborated in a clear and detailed manner, they should not be applied by the courts as the parties envisage or as other broader bankruptcy formulas may require.

The establishment of deposit priority in inter-creditor agreements is also intended to reduce the risk that the priority creditor will not be “first in time” when submitting a right of pledge. The interconnection agreement should provide that, irrespective of the date, time, method, nature or order of issue, seizure or improvement of rights of pledge guaranteeing priority or recent commitments, etc., the right of pledge to the priority creditor shall have priority in all respects and before any right of pledge of security to guarantee more recent obligations. However, counsel for both creditors should carefully adhere to all perfection requirements during the closing process in order to protect the collateral from unsecured rights holders. Finally, the interconnection agreement should require the parties not to challenge the other`s right of retention and priority of payment, as provided for in the agreement. . . .