The interbank agreement plays a central role in the right to pledge. It is therefore essential that both lenders establish a solid foundation for their rights and priorities in the event of a borrower`s financial capacity failure and late payment. In the absence of such a document, each party can make its own decisions and be inconsistent. The whole trial can be unethical and uneconomic and can quickly turn into a legal disorder in court. Such an agreement plays a decisive role in the right to collateral. Therefore, the agreement is important to all lenders, as it is the basis of rights and priorities if the borrower is not able to pay properly or be insolvent. As a general rule, such an agreement limits the payment a borrower can make to junior lenders if the borrower is behind on the terms of the agreement with junior lenders. Such provisions are called “payment freezes.” This provision even limits payments to which junior lenders are entitled in the normal course of working with the borrower, such as interest or customary fees and expenses. provides links to useful information on how to design and negotiate an inter-secretary agreement.
When structuring complex debt financing, financiers must consider whether to replace unsecured and structurally subordinated “mezzanine” debts in the capital hierarchy with a second secured mortgage. The relatively lower cost of financing dual-bond credit is based on the assumption that the second pawn bonds could obtain some capital value on the remaining guarantees that would otherwise not be available with such “mezzanine” debts. Applications for second-wage status occur even when these lenders have their own credit facility and need these pledges to increase their credit base. In exchange for such status, high-level lenders often require these pledges to be a “silent second” with minimum or non-existent enforcement rights. A duly developed inter-credit agreement between the parties to the transaction is necessary to ensure that their relative rights and obligations are applied in the event of an emergency or bankruptcy. If you do not enter into such an agreement, each lender will act in its own way. Such a process could prove unprofitable and, at the same time, become a legal confusion. Junior lenders should be careful when evaluating an intercredit file before participating. One way to achieve this goal is to negotiate a fair edge and develop achievable plans. However, if efforts to set such conditions are unsuccessful, it is advisable that the junior lender waive the agreement or seek other options. A junior lender should apply for exemption from a certain class of collateral that a priority lender has not included in its asset base.
Once it has been agreed that there will be a personal guarantee from the borrower`s client or a guarantee to the junior lender, the junior lender should ensure that the agreed rights are properly reflected in the interbank agreement and do not stop. In many inter-credit agreements, it is often common for the chief lender to dictate the terms of the pledge. However, in cases where a junior lender is not trading hard, the senior lender may disadvantage a junior lender. In some cases, a junior lender may face artificial delays on the part of the primary lender to seek authorization to enter into an agreement or right. Such an approach can thwart the process and force the junior lender to capitulate. Another provision of the inter-creditor agreement could be a stalemate. Subsequently, the junior lender is prevented from taking action against the borrower to enforce its debt.