Intercreditor Agreements

One of the more intriguing aspects of working with intercreditor agreements is that the parties generally work with a blank canvas to craft a deal-specific agreement tailored to the relationship between the parties and the requirements of the transaction. Unlike other aspects of commercial finance practice, such as Uniform Commercial Code (“UCC”) financing statements, parties are not bound by required formats or limitations as to the structure and content of intercreditor agreements.

One of the perils of working in such an “open-air” arena, however, is that the parties may not contemplate or anticipate future events that could alter the relationship of the parties or affect the original purpose of the intercreditor agreement. While the effects of such events may be positive, neutral or negative (or some combination thereof), the unintended consequences have the potential to create future uncertainty. Among the main purposes for entering into an intercreditor agreement is to establish certainty as to the parties and their respective rights and obligations. Thus, while negotiating the trees of terms and conditions in an intercreditor agreement, the parties are advised to step back periodically and examine the relationship forest as a whole to ensure that the intercreditor agreement will continue to serve its intended purpose notwithstanding future changes in circumstances.