Stuck in the Middle of the Cap Stack: Intercreditor and Subordination Agreements in Mezzanine Financings

June 18, 2019
Firm Publication

Intercreditor and Subordination Agreements in Mezzanine FinancingsProvided for download is an overview of the key terms and provisions in intercreditor/subordination agreements governing the relationship between a senior secured lender (the Senior Lender) and a mezzanine lender (the Mezz Lender). Typically, the obligations owing to the Mezz Lender (the Mezz Obligations) are unsecured or are secured solely by a pledge of the equity interests in the borrower and/or by a second lien security interest on the Senior Lender’s collateral (which when coupled with the payment subordination applicable to the Mezz Obligations, is frequently referred to as a “silent” second lien).

The applicability and negotiation surrounding each of the following discussed points can vary significantly based on the deal structure and the industry-specific experience and business relationships of the parties involved:

  • Payment Subordination and Blockage
  • Lien Subordination – Silent Second Lien and Equity Pledge
  • Exercise of Remedies/Standstill
  • Subordinate Lender-Favorable Provisions – Cure Right and Purchase Right
  • Debt Caps, Amendments and Other Restrictions
  • Customary Bankruptcy Provisions

Download Stuck in the Middle of the Cap Stack: Intercreditor and Subordination Agreements in Mezzanine Financings to better understand this layer of the capital stack.