Intercreditor Contract: First and Second Lien Loans (Silent Second Liens)

This legal template pertains to an Intercreditor Contract involving First and Second Lien Loans, specifically addressing the issue of Silent Second Liens under USA law. An Intercreditor Contract is a legally binding agreement between two or more parties that have extended credit or loans to a common borrower.

In this case, the borrower has obtained two types of loans: a First Lien Loan and a Second Lien Loan. The First Lien Loan holds a priority claim over the assets of the borrower, meaning it has the first right to recover its funds in case of default or liquidation. The Second Lien Loan, on the other hand, falls lower in the priority ladder, meaning it would only be repaid after the First Lien Loan is fully satisfied.

The Silent Second Lien aspect of this contract refers to a unique characteristic of the Second Lien Loan, which allows it to remain undisclosed or hidden from other lenders or potential investors until certain predefined conditions are met. By remaining silent or undisclosed, the borrower may have more flexibility in obtaining additional financing or securing other loans without triggering default provisions or raising concerns among other stakeholders.

However, an Intercreditor Contract becomes necessary when multiple lenders, in this case, the First Lien Loan holder and the Second Lien Loan holder, need to establish their respective rights and obligations in relation to the borrower and the collateral securing the loans. This contract serves as a framework for managing the interplay between the two lenders, defining their relative priorities, safeguards, and restrictions.

Under USA law, this template would encompass the relevant legal provisions and standard clauses that govern the relationship between the First Lien Loan holder and the Silent Second Lien lender. It would typically include sections addressing lien priorities, payment waterfall, default and remedies, subordination provisions, rights of the lenders in case of enforcement, as well as any specific requirements particular to silent second liens for compliance with applicable regulations or practices.