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ARTICLE · 03 NOVEMBER 2026

Chasing Waterfalls: Priority, Enforcement, And Lender Protections

Mayer Brown
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When multiple lender classes share a borrower or collateral package, waterfalls determine how value is allocated among competing creditor constituencies. This legal update examines how intercreditor agreements, unitranche facilities, and subordination arrangements distribute recoveries across first-lien, second-lien, ABL, and other creditor classes, while analyzing recent court decisions that have reshaped priority protections and highlighting critical negotiation points for lenders structuring multicredito

United StatesFinance and Banking
Kiel Bowen
Kiel Bowen
Mark Dempsey
Mark Dempsey
Brian Trudgen
Brian Trudgen
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This is the second in a two-part series on waterfalls in syndicated and private credit. This Legal Update examines how the waterfalls distribute value among competing creditor classes and security structures, and highlight the primary legal risks to consider when structuring and negotiating deals. For an overview of how payments are applied within a single facility, see the first installment in this series, The ABCs of Credit Agreement Waterfalls.

Introduction

In this Legal Update, we look at how waterfalls allocate value in multicreditor structures, recent court decisions that affect priority protections, and key negotiation and drafting considerations for lenders. When multiple lender classes share a borrower, collateral package or credit structure, the waterfall begins allocating shared recoveries among groups whose interests may directly compete. In these situations, waterfall protections are among the most heavily negotiated—and potentially litigated—provisions in the deal.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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