Acquisition finance—intercreditor issues

The intercreditor agreement

Acquisition finance transactions are often funded from a number of different sources. Common sources of funding are:

1. •

   equity (this will typically comprise equity in the form of share capital and quasi-equity in the form of subordinated debt instruments such as loan notes)

2. •

   senior debt (including senior loan facilities and senior secured notes)

3. •

   unitranche debt

4. •

   mezzanine debt (or another form of junior debt such as second lien or PIK)

5. •

   high yield notes

See Practice Note: Sources of finance for more information about common structures and the different types of funding typically used.

Where multiple sources of debt are used, there will be a number of different types of creditor and each of these will be keen to protect its own interests. The principal purpose of the intercreditor agreement is to regulate the relationship between the different types of creditors. For information on subordination generally, see Practice Note: Subordination.

Depending on the transaction, a full