Priorities Matter – But That's Not All That Matters!

Often, when the parties to a financing are discussing priorities or intercreditor arrangements, there tends to be a simplistic view taken of these agreements. Once the competing creditors have sorted out their respective priorities over the various pools or types of collateral, they tend to think that the terms of the agreement are essentially settled and simply need to be put into writing.

Intercreditor or priorities agreements are typically not that simple. Clearly, establishing each creditor's respective priority over the debtor's various assets is critical. However, as a practical matter, a failure to consider and address other factors relevant to the debtor could easily thwart a creditor's ability to successfully recover on its loan, should the lender need to enforce its rights and security in a default scenario.