Transatlantic Intercreditor Agreements: Comparing, Contrasting, and Reconciling U.S. and European Approaches

Description

As financings that touch both sides of the Atlantic continue to rise and the complexity of such financings increases, intercreditor arrangements have evolved to address different expectations of U.S. and European creditors. U.S. intercreditors are predicated on the assumption that the borrower's business will be reorganized under the U.S. Bankruptcy Code, while European intercreditors seek to facilitate a swift out-of-court, out-of-bankruptcy, enforcement sale.

European second lien intercreditor agreements typically combine claim subordination, payment blockages, lien subordination, broad enforcement standstill provisions restricting the junior lien creditors' ability to take enforcement action (not only concerning collateral but also concerning debt and guarantee claims), and extensive release mechanics.

U.S. second lien intercreditors establish lien subordination, which regulates the rights of the U.S. second lien creditors concerning collateral only, and include an enforcement standstill relating to actions against collateral only. U.S. second lien intercreditors do not generally include payment or claim subordination, and they rely heavily on waivers of the junior lien creditors' rights as secured creditors under Chapter 11.

There is no market standard first lien/second lien intercreditor agreement in cross-border transactions, so terms are often determined on a deal-by-deal basis depending on the location of the borrower's business, the jurisdiction of the borrower, the likelihood of the borrower group filing for U.S. bankruptcy protection, and the relative negotiating strength of the junior lien creditors.

Listen as our authoritative panel examines the essential terms of U.S, as compared to European, intercreditor agreements, and discusses the approaches commercial finance counsel have taken to address these differences in transatlantic first lien/second lien transactions.