An intercreditor agreement, or ICA, is a crucial document in the world of debt financing. It outlines the rights and obligations of different lenders and sets the parameters for how they will work together in arranging and managing a loan. While ICAs are used worldwide, they can vary in their legal requirements and nuances in different countries. Therefore, it is essential to understand the specifics of ICAs in a particular jurisdiction, such as France.
In a French ICA, the primary goal is to establish a clear and agreed-upon hierarchy of creditor claims, known as the “priority of payments.” In essence, this means that lenders agree on who gets paid first, second, and so on, in the event of default by the borrower. This hierarchy is established based on the type of debt and the related security or collateral. In general, lenders with secured debt, such as those with mortgages or liens on property, will have priority over lenders with unsecured debt.
Another critical aspect of French ICAs is the “vote on enforcement” mechanism. This requires that all lenders must agree on any action regarding the loan, including enforcement of security or collateral, before any action can be taken. This means that if one lender disagrees with a proposed course of action, that action cannot proceed, which could complicate the loan`s management.
One aspect of any ICA that should not be overlooked is the “default waterfall” provisions. This establishes what happens in the event of a default by the borrower, including the process for calling in the loan, seizing assets, and distributing any proceeds. The default waterfall also outlines how the different lenders will share the losses and expenses incurred during the enforcement of the loan.
As with any legal document, French ICAs require precision and care to ensure that all parties fully understand their rights and obligations. It is crucial to consult experienced legal counsel when drafting or reviewing such agreements to ensure that they conform to French law and that the parties` interests are fully protected.
In conclusion, an intercreditor agreement is a vital document that enables multiple lenders to work together to arrange and manage a loan. In France, ICAs must establish a clear priority of payments, voting procedures, and default waterfall provisions to ensure a smooth and efficient loan process. Legal counsel, experienced in French law, should be consulted when drafting or reviewing such agreements to ensure their compliance and their protection of all parties` interests.
