Model Aba Intercreditor Agreement

When it comes to financing projects, it`s critical to have a well-drafted agreement in place. In the case of multi-creditor deals, an Intercreditor Agreement (ICA) plays a crucial role in ensuring that all parties involved are on the same page. One of the most commonly used ICAs is the Model ABA Intercreditor Agreement, created by the American Bar Association Business Law Section.

The Model ABA Intercreditor Agreement lays out the hierarchy of creditors and their rights in the event of the borrower defaulting on their loan. It includes provisions on how to handle priority of payments, subordination, and enforcement actions. One of the key features of the Model ABA Intercreditor Agreement is the “waterfall” provision, which sets out the order in which creditors should be repaid if the borrower defaults. This provision helps to prevent conflicts between the creditors, who may have different levels of priority.

Another important aspect of the Model ABA Intercreditor Agreement is the “standstill” provision. This provision typically restricts junior creditors from taking legal action against the borrower or senior creditors without the senior creditors` consent. This provision ensures that the senior creditors retain control over the debt structure and can work together to resolve issues before taking legal action.

The Model ABA Intercreditor Agreement is a flexible document that can be tailored to specific situations. For example, it can be used in syndicated loans, mezzanine financing, or subordinated debt transactions. The agreement can also accommodate other parties who may have an interest in the debt structure, such as sponsors or guarantors.

When drafting or negotiating an Intercreditor Agreement, it`s essential to work with experienced professionals who understand the nuances of the agreement. This includes attorneys, lenders, and advisors who specialize in intercreditor transactions and have experience working with the Model ABA Intercreditor Agreement.

Overall, the Model ABA Intercreditor Agreement is a valuable tool in multi-creditor transactions. It provides a clear framework for resolving disputes and ensures that all parties involved understand their respective rights and obligations. By using this agreement, borrowers and lenders can work together to finance projects and minimize the potential for conflicts.

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