What is it?
A contractual clause that governs the relative priorities and enforcement rights of multiple secured creditors.
intercreditor
UCC / CommercialLegal glossary term
Quick answer
INTERCREDITOR usually means a clause that sets priority among multiple lenders. In contracts, it matters because junior lenders may lose recovery if the hierarchy is unclear. Before signing, check the pay‑off waterfall and consent requirements.
Definitions
What is intercreditor?
Legal Definition
When several lenders have security interests in the same borrower, an intercreditor agreement allocates priority and payment rules among them. The clause creates binding rights for senior lenders to receive proceeds before junior lenders and may restrict junior enforcement actions. Practitioners focus on the “pay‑off waterfall” provision that determines distribution order.
Plain-English Translation
Think of a group of kids sharing a candy stash; the oldest decides who gets a piece first and who must wait.
Contract relevance
Why intercreditor matters in contracts
Misapplying it can cause junior lenders to lose their expected recovery, leaving them with unpaid balances; the junior lender bears the risk.
Document context
Where intercreditor appears in documents
| Document type | Section | Why it matters |
|---|---|---|
| Security agreement | Article 9, UCC | Defines priority among secured creditors |
| Bond indenture | Section 5.3 | Allocates payment waterfall for bondholders |
| ISDA master agreement | Schedule A | Governs cross‑default and enforcement rights |
| Bank loan syndication agreement | Exhibit B | Sets senior‑junior lender relationships |
Contract language
Common contract wording
| Contract wording | Plain-English meaning | What to check |
|---|---|---|
| "Senior lenders shall have first claim on all collateral proceeds" | Senior lenders get paid first | Verify the definition of "proceeds" |
| "Junior lenders may not enforce security without senior consent" | Junior lenders need permission to act | Check consent thresholds and notice periods |
| "Payments shall be applied according to the waterfall set forth herein" | Distribution follows a set order | Ensure the waterfall matches intended priority |
Red flags
Red flags to watch for
Wording examples
Clearer wording examples
Vague wording
"Payments will be made"
Clearer wording
"Payments will be made in the order: Senior Lender, then Junior Lender"
Vague wording
"Junior lender may act"
Clearer wording
"Junior lender may act only after obtaining written consent from Senior Lender"
Note: “clearer” means easier to read — not legally reviewed or guaranteed safe.
Pre-signature checklist
What to check before signing
1
Identify all secured creditors and their ranks
2
Confirm the pay‑off waterfall matches your expectations
3
Review consent thresholds for junior enforcement
4
Ensure definitions of "collateral proceeds" and "sale proceeds" are included
5
Check notice periods required after default
6
Look for carve‑out exceptions for junior lenders
7
Verify amendment procedures for the intercreditor clause
Party impact
How intercreditor affects each party
| Party | What this party should check |
|---|---|
| Senior lender | Verify it retains first‑lien status and control over enforcement |
| Junior lender | Ensure it can obtain consent and understand its limited recovery |
| Borrower | Confirm that the waterfall does not create impossible payment obligations |
Comparison
intercreditor vs similar terms
| Related term | Plain meaning | Main difference from intercreditor |
|---|---|---|
| Subordination clause | Sets lower priority for a debt | Intercreditor agreement also defines enforcement procedures and consent rights |
| Cross‑collateralization | Uses same asset for multiple loans | Intercreditor agreement governs how those loans share the asset upon default |
| Priority rule | General legal principle of lien ranking | Intercreditor agreement is the contractual embodiment of that principle |
Missing or vague
If intercreditor is missing or vague
If the intercreditor provisions are absent or vague, senior and junior lenders may dispute who receives proceeds after a default. Junior lenders might attempt enforcement that senior lenders consider prohibited, leading to litigation. The borrower could face competing claims that delay asset liquidation and increase costs. Courts will then interpret the parties' intent, often to the detriment of the less powerful creditor.
Document map
Document section map
| Contract section | What to inspect |
|---|---|
| Definitions | Look for "Senior Lender" and "Junior Lender" definitions |
| Priority and Payment | Inspect the waterfall and distribution language |
| Default and Enforcement | Review notice and consent requirements |
| Amendment | Check how the intercreditor clause can be modified |
| Miscellaneous | Ensure cross‑reference to collateral description |
Visual model
Understand intercreditor fast
An explainer image has not been generated for this term yet.
01
Bank A (senior lender) forecloses on a commercial property and receives all sale proceeds before Bank B (junior lender) can collect any balance.
02
A mezzanine fund (junior creditor) must obtain written consent from the senior bondholder before initiating a bankruptcy filing against the borrower.
03
A landlord’s first mortgage holder enforces a lien, while the second mortgage holder is restricted to filing a claim after the first holder’s proceeds are exhausted.
Document context
How intercreditor shows up in legal documents
Why does it matter?
Misapplying it can cause junior lenders to lose their expected recovery, leaving them with unpaid balances; the junior lender bears the risk.
When does it matter?
When a borrower defaults on a loan secured by the same collateral held by more than one creditor, the intercreditor provisions trigger.
Where is it usually seen?
Standard in Article 9 UCC security agreements, senior debt indentures, and ISDA master agreements.
Who is affected?
Senior lender gains first claim on collateral proceeds; junior lender gains limited enforcement rights and often must obtain consent before foreclosure.
How does it work?
First, the parties draft a pay‑off waterfall specifying the order of distributions. Then, they include carve‑out clauses allowing junior lenders limited actions without senior consent. Within 30 days of default, the senior lender must notify the junior lenders of its intended enforcement steps.
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Wikipedia
External reference for intercreditor
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Where intercreditor connects to real contract work
This layer links the term to nearby glossary entries, document use cases, and contract-risk guides so readers can move from definition to context without dead ends.
Glossary
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Source & disclosure
This page is an AI-assisted plain-English explanation based on LexPredict Legal Dictionary context and contract-review patterns. It is not legal advice. Meaning may vary by jurisdiction, industry, and exact clause wording.
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