Managing Insurer Credit Limit Cancellations within Asset Based Lending Facilities
Manage insurer credit limit cuts by enforcing immediate credit holds, shifting uninsurable buyers to letters of credit, and adjusting ABL borrowing base eligibility.
Senior Debt Intercreditor Agreement
Meaning
Formal agreements define the repayment hierarchy and voting rights between multiple lenders sharing the same borrower. A senior debt intercreditor agreement establishes that the main bank will be repaid in full before any junior or mezzanine lenders receive a distribution. It governs how the different parties will coordinate their actions if the borrower defaults on its obligations.
Waterfall Priority
Cash flows from the business are directed to the highest-ranking debt holders first. The senior debt intercreditor agreement specifies the exact order of payment for interest and principal, ensuring there is no confusion during a liquidity crisis. This clear structure is what allows different types of lenders to participate in the same overall funding package.
Coordination Protocol
Lenders must agree on a single path forward when a covenant is breached to avoid conflicting legal actions. A senior debt intercreditor agreement often includes a standstill period where junior lenders are barred from taking enforcement action for a set time. This gives the primary bank the space to negotiate a turnaround or a controlled sale of assets.
Covenant Structure
Restrictions on the borrower are aligned so that a failure to meet one bank’s targets triggers a review by all parties. Because the senior debt intercreditor agreement binds the lenders together, it prevents the borrower from playing one creditor against another. The primary lender typically holds the most power in determining whether to waive a breach.