The Deed of Subordination is essential in complex financing arrangements within Saudi Arabia where multiple creditors are involved and a clear hierarchy of debt needs to be established. This document is particularly crucial in project finance, corporate restructuring, or when new debt is being introduced alongside existing facilities. It must comply with Saudi Arabian law and Sharia principles, making it distinct from conventional subordination agreements used in other jurisdictions. The deed typically details the ranking of creditors, payment conditions, restrictions on junior debt, and enforcement mechanisms. It's commonly used in conjunction with facility agreements, particularly when introducing mezzanine financing or in situations where parent company debt needs to be subordinated to bank financing.
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1. Parties: Identifies all parties to the deed including Senior Creditor(s), Junior Creditor(s), and the Debtor
2. Background: Sets out the context of the existing debts and the purpose of the subordination arrangement
3. Definitions and Interpretation: Defines key terms and establishes interpretation principles, including Sharia-compliant terminology
4. Subordination: Core provision establishing the subordination of junior debt to senior debt
5. Undertakings by Junior Creditor: Specific commitments and restrictions on the Junior Creditor regarding the subordinated debt
6. Undertakings by Debtor: Debtor's obligations regarding payments and maintaining the subordination structure
7. Permitted Payments: Specifies circumstances under which payments on subordinated debt are allowed
8. Turnover of Non-Permitted Recoveries: Procedure for handling payments received in breach of the subordination
9. Power of Attorney: Grants Senior Creditor authority to enforce subordination rights
10. Duration: Period of effectiveness of the subordination arrangement
11. Governing Law and Jurisdiction: Specifies Saudi law as governing law and relevant courts' jurisdiction
1. Security Provisions: Include when the subordination arrangement involves secured debts
2. Additional Creditor Accession: Include when there's possibility of additional creditors joining the arrangement
3. Amendments to Senior Facility: Include when senior debt terms may be modified without junior creditor consent
4. Sharia Compliance Declaration: Include when explicitly required to confirm Sharia compliance
5. Debt Acquisition Provisions: Include when addressing potential debt trading or transfer scenarios
6. Cross-Border Provisions: Include when any parties or assets are located outside Saudi Arabia
1. Schedule 1 - Details of Senior Debt: Lists all senior debt facilities and their key terms
2. Schedule 2 - Details of Subordinated Debt: Lists all subordinated debt facilities and their key terms
3. Schedule 3 - Form of Accession Deed: Template for additional parties to join the subordination arrangement
4. Schedule 4 - Payment Conditions: Detailed conditions for permitted payments on subordinated debt
5. Schedule 5 - Notice Details: Contact information and notice requirements for all parties
6. Appendix A - Relevant Security Documents: List and copies of related security documentation
7. Appendix B - Required Authorizations: Copies of corporate and regulatory approvals
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