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An Intercreditor Agreement sets out the rights and priorities between different lenders who provide loans to the same borrower. In Hong Kong's busy lending market, these agreements are crucial when multiple banks or financial institutions fund a single project or company.

The agreement spells out key details like who gets paid first if the borrower defaults, which lender can take action against the borrower, and how collateral is shared. For example, in a typical Hong Kong property development, the main bank might have first claim on the building, while secondary lenders get repaid from other assets. This arrangement helps avoid disputes and creates clear rules for everyone involved.

You need an Intercreditor Agreement anytime multiple lenders provide financing to the same borrower in Hong Kong. This becomes especially important in syndicated loans, project financing, or when restructuring existing debt. For example, when financing a major infrastructure project, different banks might fund different phases or aspects of construction.

The agreement becomes essential before the first loan disbursement to prevent future conflicts. It's particularly crucial in complex scenarios like property development loans with both senior bank financing and mezzanine debt, or when dealing with mainland Chinese lenders alongside Hong Kong banks. Getting this agreement in place early helps avoid costly disputes and ensures smooth coordination between lenders.

• Senior-Subordinate Structure: Most common in Hong Kong, where senior lenders have priority over subordinate lenders for both payments and security
• Pari Passu Arrangement: All lenders share equal rights and priority, often used in club deals among banks of similar standing
• First-Second Lien Structure: Popular in secured financing, where first-lien lenders have priority over specific assets while second-lien lenders have subordinate claims
• Split Collateral: Different lenders have first priority over different asset pools, common in trade finance and property development
• Layered Priority: Complex waterfall structures with multiple tiers of priority, typically used in large syndicated deals

• Primary Lenders: Usually major Hong Kong banks or financial institutions who hold first-priority security interests and lead the lending syndicate
• Secondary Lenders: Mezzanine financiers, private equity firms, or smaller banks who accept subordinated positions in the credit structure
• Corporate Borrowers: Companies receiving multiple loans, often for large projects or business expansion
• Legal Counsel: Hong Kong law firms specializing in banking and finance who draft and negotiate the agreements
• Security Agents: Financial institutions that manage collateral and enforce security rights on behalf of multiple lenders

• Loan Details: Gather information about all existing and proposed loans, including amounts, interest rates, and security arrangements
• Lender Priorities: Confirm the ranking of each lender's claims and their voting rights for key decisions
• Security Package: Document all collateral and how it will be shared or allocated among lenders
• Payment Waterfall: Establish the order of payments and how proceeds from enforcement will be distributed
• Enforcement Rights: Define which lenders can take action against the borrower and under what circumstances
• Standstill Provisions: Specify periods during which junior lenders cannot take enforcement action

• Parties and Definitions: Clear identification of all lenders, borrowers, and key terms used throughout
• Priority Structure: Detailed ranking of debt and security interests among different classes of lenders
• Payment Provisions: Rules for distribution of payments and proceeds among creditors
• Enforcement Mechanisms: Procedures for taking action against borrowers and exercising security rights
• Standstill Terms: Periods and conditions when junior creditors must refrain from enforcement
• Amendments: Process for modifying the agreement with required consent levels
• Governing Law: Explicit statement choosing Hong Kong law and jurisdiction

People often confuse an Intercreditor Agreement with a Bond Issuance Agreement, especially in Hong Kong's complex financing landscape. While both deal with debt arrangements, they serve distinctly different purposes and involve different relationships.

• Primary Purpose: Intercreditor Agreements manage relationships between multiple lenders, while Bond Issuance Agreements establish terms between a single issuer and bondholders
• Party Structure: Intercreditor Agreements involve multiple banks or lenders with different priorities, whereas Bond Issuance Agreements typically have one issuer and many identical bondholder rights
• Security Arrangements: Intercreditor Agreements detail how different lenders share or rank in security interests, while Bond Issuance Agreements focus on the specific security backing the bonds
• Enforcement Rights: Intercreditor Agreements specify which lenders can take action when, while Bond Issuance Agreements usually give all bondholders equal enforcement rights