The definition of the priority of pawn between two secured creditors is necessary if both have security rights in the same security. The reason for this is that the primary lender will attempt to be repaid first from the proceeds of the guarantee to enforce the lien, while the younger lender expects to collect only the remaining proceeds. If the proceeds of the guarantee are not sufficient to repay the principal lender in full, secured creditors and all other unsecured creditors would be entitled to repay the remaining debt from the debtor`s other assets. The provisions on the subordination of payments in the inter-creditor agreement mitigate this result in favour of the principal creditor. Subordination to payment allows the principal creditor to be paid first from all assets of the debtor or another debtor of the debtor, whether or not those assets constitute collateral. The amount due to the main lender determines the terms of payment, not the value of the pledged collateral. The provisions of the inter-creditor agreement generally require all parties to overpay all proceeds of the joint security common to the principal creditor or its representative. In general, in every document signed by two or more parties, each party should be aware of the critical elements of the agreement. Therefore, it is necessary for a junior lender to reach a clear ground before starting the transaction and identify the fundamental issues, as follows: such an agreement also includes the determination of redemption rights. This right allows a lender to purchase the claims and privileges of other lenders. Such an option is triggered after certain events, for example.

B after the filing of insolvency proceedings. But in the event that there is a senior/junior lender, the lenders make an agreement between the creditors. Such an agreement helps them define their respective rights. The agreement between creditors plays a central role in the privilege. It is therefore crucial for both lenders to build a solid foundation in terms of rights and priorities in the event that a borrower`s financial capabilities erode and it fails. In the absence of such a document, each party may simultaneously exercise its own decisions and be inconsistent. The whole process can be unethical and not economic, and can quickly turn into a legal mess in court. In addition, it may also happen that the lead lender intentionally delays the approval of the agreement, which can be fair to the junior lender. This could prove frustrating for the junior lender.

If you do not go through such an agreement, each lender will proceed in its own way. Such a process could prove to be unprofitable and at the same time become a legal mess. When structuring complex debt financing, financiers need to consider whether unsecured and structurally subordinated mezzanine debt in the capital hierarchy should be replaced by second-tier secured loans. .