ThomasMoreAI Intercreditor Agreement (Lien Priority)
Drafts an intercreditor agreement establishing absolute lien priority between first lien and second lien creditors over shared collateral, incorporating LSTA-standard subordination, standstill, waterfall, turnover, and bankruptcy provisions.
Prerequisites
Collect before drafting:
- First lien credit agreement — loan amounts, maturity, rates, collateral descriptions
- Second lien credit agreement — same for junior facility
- Security agreements — perfection status, filing details, collateral schedules
- Borrower organizational documents — entity type, jurisdiction
- Existing intercreditor/subordination arrangements (if any)
Quick Start
Draft all articles in order. Extract obligation amounts, maturity dates, and collateral descriptions from uploaded transaction documents. Mark any statutory citations not independently verified with [VERIFY].
Output Structure
Article I — Recitals & Definitions
Establish context referencing both credit facilities and shared collateral. Required defined terms:
| Term | Scope |
|---|---|
| First Lien Obligations | Principal, interest (including post-petition), fees, expenses, indemnities |
| Second Lien Obligations | Same scope for second lien docs |
| Collateral | All shared collateral securing both obligation sets |
| Lien Priority | Absolute first lien superiority regardless of attachment/perfection order |
| Standstill Period | Typically 180 days, triggered by payment default or EOD under first lien docs |
| Discharge of First Lien Obligations | Full payment; cash pay, L/C termination, hedge unwind conditions |
| Insolvency Proceeding | Bankruptcy Code proceedings, receivership, assignment for benefit of creditors, foreign equivalents |
Article II — Lien Priority & Subordination
- Absolute first lien priority regardless of attachment/perfection order
- Subordination covers principal, pre/post-petition interest, fees, expenses, all amounts
- Priority applies to voluntary payments, enforcement, bankruptcy, collateral dispositions
- Continues until Discharge of First Lien Obligations
- Second lien holder may not contest priority or seek equitable subordination
Article III — Enforcement Rights & Standstill
First lien holders may (no second lien consent required):
- Enforce all remedies against collateral
- Accept/reject DIP financing proposals
- Vote on reorganization plans
- Exercise all secured creditor rights
Second lien holders may NOT during Standstill Period:
- Accelerate obligations or exercise collateral remedies
- Object to first lien enforcement actions
- Interfere with first lien rights
- Seek adequate protection for second lien interests
Post-standstill: Specify limited second lien actions available if first lien enforcement remains incomplete.
Article IV — Payment Waterfall & Turnover
Distribution priority (all collateral proceeds):
- First Lien Obligations — pay in full
- Second Lien Obligations — remainder
Turnover obligations:
- Immediate remittance of payments received in violation of priority (regardless of knowledge)
- Turned-over amounts treated as first lien collateral proceeds
- Covers borrower payments, collateral proceeds, bankruptcy distributions, all other sources
Address specifically: cash collateral use in bankruptcy, adequate protection payments, distributions under confirmed reorganization plans.
Article V — Representations & Warranties
Mutual representations from both lien holders:
- Due organization and authority
- No conflicts with organizational docs or other agreements
- Valid and perfected security interests
- All actions taken to establish and maintain lien priority
- No side agreements contradicting priority scheme
- Transaction-specific reps (verify against uploaded credit/security docs)
Article VI — Covenants
Notice requirements: Prompt notice of amendments affecting collateral, obligations, or relative rights.
Second lien amendment restrictions — may not:
- Increase principal or accelerate maturity
- Increase rates beyond specified thresholds
- Restrict borrower's ability to satisfy first lien obligations
Bankruptcy coordination: Proofs of claim, plan voting, DIP financing/asset sale consent.
Ongoing: Maintain perfection, cooperate on documentation, precise notice mechanics (addresses, methods, timing).
Article VII — Bankruptcy & Insolvency
- Agreement constitutes "subordination agreement" under Section 510(a)
[VERIFY] - Enforceable before, during, and after any bankruptcy case
- Second lien holders will not oppose first lien motions for stay relief, adequate protection, or cash collateral use
- First lien holders have exclusive DIP financing and cash collateral rights
- Second lien holders may not seek adequate protection unless first lien holders also receive it
- Address post-petition interest and Section 510(c) exception
[VERIFY] - Enforceable against trustee or debtor-in-possession
Article VIII — Miscellaneous
| Provision | Standard |
|---|---|
| Governing law | Specify jurisdiction (typically NY) |
| Amendments | Written consent of all parties |
| Severability | Invalid provisions severable |
| Integration | Supersedes all prior understandings |
| Counterparts | Electronic delivery permitted |
| Successors & assigns | Binding; include assignment mechanics |
| Third-party beneficiaries | None (or specify borrower rights) |
| Jury trial waiver | Mutual waiver |
| Jurisdiction & service | Submission to specified courts |
| Borrower consent | Whether amendments require borrower consent |
| Termination | Conditions for agreement termination |
Drafting Checks
- Follow LSTA Model First Lien/Second Lien Intercreditor Agreement conventions
- Every defined term appears in operative provisions and vice versa
- Internal cross-references are accurate
- Consistent capitalization of defined terms throughout
- Jurisdiction-specific UCC or Bankruptcy Code variations flagged
- No enforceability opinions — present as drafted terms for counsel review
- If collateral includes real property, address mortgage subordination separately
- All unverified statutory citations marked
[VERIFY]