Intercreditor Agreement Template for Canada

An Intercreditor Agreement sets clear rules between multiple lenders who provide loans to the same borrower. When companies in Canada take on debt from several sources - like banks, investment funds, or bondholders - this agreement spells out who gets paid first and how to handle important decisions about the debt.

The agreement becomes especially vital during financial trouble or bankruptcy proceedings under the Companies' Creditors Arrangement Act. It prevents conflicts by establishing each lender's rights, including their priority for repayment, their ability to enforce security interests, and their voting power on key matters like debt restructuring or asset sales.

Your company needs an Intercreditor Agreement when multiple lenders are involved in financing the same business. This happens commonly in syndicated loans, where several Canadian banks team up to provide funding, or when a business takes both senior bank debt and junior mezzanine financing.

The agreement becomes essential before closing any multi-lender deal, especially for complex financing structures or when mixing different types of debt. Getting it in place early prevents disputes about payment priorities, security enforcement rights, and standstill periods - issues that often surface during financial stress or when restructuring under the Companies' Creditors Arrangement Act.

• First-Lien/Second-Lien Agreements: Common in layered debt structures, establishing clear payment rankings and enforcement rights between senior and junior lenders
• Senior/Subordinated Agreements: Used when mixing bank loans with mezzanine or bond financing, focusing on payment waterfalls and subordination terms
• Pari Passu Agreements: Coordinates equal-ranking lenders in syndicated loans, setting rules for shared security and collective decision-making
• Split Collateral Agreements: Divides security interests between lenders, often seen when working capital lenders take priority over inventory while term lenders prioritize fixed assets

• Senior Lenders: Usually banks or major financial institutions who provide the primary financing and hold first-ranking security interests
• Subordinated Lenders: Investment funds, private lenders, or bondholders who accept lower payment priority in exchange for higher returns
• Corporate Borrowers: The companies receiving multiple layers of debt financing, who must comply with the agreement's terms
• Legal Counsel: Corporate and banking lawyers who draft and negotiate the agreements, ensuring compliance with Canadian secured lending laws
• Loan Officers: Bank representatives who monitor compliance and coordinate between lender groups during key decisions

• Loan Details: Gather information about each lender's debt amount, interest rates, and security interests
• Payment Terms: Document the payment priorities, waterfall structures, and permitted payment conditions for each tier of debt
• Security Rights: List all collateral, security registrations, and enforcement rights for each lender group
• Decision Powers: Define voting rights, standstill periods, and amendment thresholds for key decisions
• Default Procedures: Outline steps for handling defaults, including notification requirements and remedy periods
• Template Selection: Use our platform's smart templates to ensure compliance with Canadian secured lending laws and PPSA requirements

• Parties and Definitions: Clear identification of all lenders, borrowers, and key terms used throughout
• Lien Priorities: Detailed ranking of security interests and payment rights under Canadian PPSA rules
• Payment Provisions: Waterfall structure, permitted payments, and blocked payment periods
• Standstill Terms: Duration and conditions when junior lenders must wait before taking enforcement action
• Enforcement Rights: Rules for exercising security, including notice requirements and coordination
• Amendment Procedures: Required consent levels for changes and modifications
• Governing Law: Explicit choice of Canadian provincial law and jurisdiction for disputes

An Intercreditor Agreement differs significantly from a Control Agreement, though both deal with secured lending relationships. While Intercreditor Agreements manage relationships between multiple lenders, Control Agreements focus on establishing a lender's control over specific collateral, typically deposit accounts or investment securities.

• Parties Involved: Intercreditor Agreements operate between multiple lenders and a borrower, while Control Agreements are three-way arrangements between a lender, borrower, and account holder (usually a bank)
• Primary Purpose: Intercreditor Agreements establish payment priorities and enforcement rights, whereas Control Agreements perfect security interests in specific financial assets
• Scope of Control: Intercreditor Agreements cover broad lending relationships and all collateral, while Control Agreements focus narrowly on particular accounts or securities
• Timing of Use: Control Agreements are typically executed at the start of a lending relationship, while Intercreditor Agreements often come into play when multiple financing rounds occur