A Lender's 2026 Resolution: Drafting Intercreditor Agreements That Avoid Ambiguity

Ongoing market volatility has underscored the importance for lenders of periodically reassessing the clarity and effectiveness of their contract drafting practices, particularly in complex financing structures. One topic that deserves particular attention is the drafting of intercreditor agreements ("ICAs"). Although ICAs take many forms and may not be titled as such depending on the structure of the financing, they serve a common function: applying subordination clauses to allocate priority and enforcement rights among lenders when a borrower encounters financial distress. When carefully drafted, an ICA allows a lender to contract out of statutory priority rules and create a payment and enforcement framework tailored to its objectives. However, existing case law shows that ambiguities in ICA drafting can significantly undermine intended outcomes.