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An Intercreditor Agreement sets the ground rules between multiple lenders who are lending money to the same borrower. In Pakistan's banking sector, these agreements are especially important when dealing with syndicated loans or project financing, where several banks might fund a single large project.

The agreement spells out crucial details like payment priorities, security sharing, and what happens if the borrower defaults. For example, if a company has both secured and unsecured loans from different Pakistani banks, the agreement will clearly state which lender gets paid first and how collateral will be divided - helping prevent disputes and keeping the lending process smooth under local banking regulations.

An Intercreditor Agreement becomes essential when multiple lenders are financing the same Pakistani business or project. This typically happens with large infrastructure developments, real estate ventures, or when a company needs both working capital and long-term financing from different banks.

Put this agreement in place before finalizing multiple loans, especially when dealing with secured lending under Pakistani banking laws. For example, if your company is getting both a term loan from one bank and a working capital facility from another, having an Intercreditor Agreement prevents future conflicts about repayment priorities and security enforcement rights. It's particularly crucial when mixing Islamic and conventional financing structures.

• Senior-Subordinate Structure: Common in Pakistani corporate financing, where senior lenders get repayment priority over subordinate lenders
• Pari Passu Arrangement: All lenders share equal rights and priorities, often used in syndicated Islamic banking transactions
• First-Second Lien Structure: Popular in large infrastructure projects, defining rights between primary and secondary security holders
• Split Collateral: Each lender gets exclusive rights to different assets, common in mixed conventional-Islamic financing deals
• Subordination and Standstill: Used when involving international lenders, defining payment hierarchies and enforcement restrictions

• Primary Lenders: Usually major Pakistani banks or financial institutions providing the main financing, who initiate the Intercreditor Agreement process
• Secondary Lenders: Other financial institutions, including Islamic banks and international lenders, joining the financing arrangement
• Corporate Borrowers: Large companies or project developers receiving multiple loans, who must comply with the agreement's terms
• Legal Counsel: Corporate lawyers specializing in banking law who draft and negotiate the agreement's terms
• Security Trustees: Banks or trust companies managing shared collateral on behalf of all lenders

• Loan Details: Gather all facility amounts, types of loans, and security arrangements from each lender
• Security Documentation: Collect details of all collateral, mortgages, and charges registered with SECP
• Payment Priorities: Define clear payment hierarchies and sharing ratios among lenders
• Enforcement Rights: Outline specific situations when each lender can take independent action
• Compliance Requirements: Check State Bank of Pakistan's prudential regulations for multi-bank financing
• Shariah Compliance: If Islamic financing is involved, ensure terms align with Islamic banking principles

• Parties and Definitions: Clear identification of all lenders, borrowers, and key terms used throughout
• Security Sharing: Detailed arrangements for sharing collateral and enforcement rights
• Payment Waterfall: Specific order of priority for distributing payments among lenders
• Standstill Provisions: Rules limiting individual lender actions during default
• Dispute Resolution: Pakistani arbitration or court jurisdiction clauses as per local law
• Governing Law: Clear statement of Pakistani law application and relevant banking regulations
• Amendment Protocol: Procedures for modifying agreement terms with consent requirements

An Intercreditor Agreement differs significantly from an Asset Purchase Agreement in both purpose and scope. While both documents are crucial in Pakistani business transactions, they serve distinct functions in financial arrangements.

• Primary Purpose: Intercreditor Agreements manage relationships between multiple lenders, while Asset Purchase Agreements govern the sale and transfer of specific assets between buyer and seller
• Parties Involved: Intercreditor Agreements primarily involve multiple banks or financial institutions, whereas Asset Purchase Agreements typically involve just two parties - a buyer and seller
• Duration and Effect: Intercreditor Agreements remain active throughout the loan period, while Asset Purchase Agreements conclude once the asset transfer is complete
• Legal Framework: Intercreditor Agreements fall under banking regulations and State Bank guidelines, while Asset Purchase Agreements are governed by contract and property laws