The Bank Subordination Agreement is essential in complex financing arrangements where multiple lenders provide credit to a single borrower in Pakistan. This document becomes necessary when there is a requirement to establish a clear hierarchy between different classes of debt, typically distinguishing between senior and subordinated (junior) debt. The agreement ensures compliance with Pakistani banking regulations while protecting senior lenders' priority rights in terms of payment and security enforcement. It includes specific provisions for payment restrictions, turnover of receipts, and enforcement limitations on subordinated creditors, all within the framework of Pakistani law and banking practices. The document is particularly crucial in project finance, corporate restructuring, and syndicated lending arrangements where multiple creditors need clarity on their respective rights and obligations.
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1. Parties: Identifies all parties to the agreement including senior lender(s), subordinated lender(s), and the borrower
2. Background: Recitals explaining the context of existing lending arrangements and purpose of subordination
3. Definitions and Interpretation: Defines key terms used in the agreement and rules of interpretation
4. Subordination: Core provisions establishing the subordination of junior debt to senior debt
5. Ranking and Priority: Detailed provisions on the ranking of different debts and security interests
6. Payment Restrictions: Conditions and restrictions on payments to subordinated creditors
7. Turnover of Receipts: Obligations to turn over any unauthorized payments received by subordinated creditors
8. Enforcement Restrictions: Limitations on enforcement actions by subordinated creditors
9. Application of Proceeds: Rules for the application of proceeds from enforcement or insolvency
10. Power of Attorney: Appointment of senior creditor as attorney to enforce subordination provisions
11. Representations and Warranties: Standard representations and warranties from all parties
12. Duration and Release: Term of the agreement and conditions for release of subordination
13. Miscellaneous: Standard boilerplate provisions including notices, amendments, and governing law
1. Security Provisions: Additional provisions regarding security arrangements, used when the subordination involves secured debts
2. Permitted Payments: Specific provisions allowing certain payments to subordinated creditors under defined circumstances
3. Additional Subordinated Creditors: Mechanism for additional creditors to accede to the agreement, used in syndicated arrangements
4. Inter-creditor Provisions: Additional provisions governing relationships between multiple creditors, used in complex lending structures
5. Purchase Option: Rights for subordinated creditors to purchase senior debt, used in certain sophisticated arrangements
6. Debt Trading Provisions: Provisions governing the transfer of subordinated debt, used when debt trading is contemplated
1. Schedule 1 - Details of Senior Facilities: Lists all senior facility agreements and amounts
2. Schedule 2 - Details of Subordinated Debt: Lists all subordinated debt arrangements and amounts
3. Schedule 3 - Form of Accession Deed: Standard form for new parties to accede to the agreement
4. Schedule 4 - Form of Subordinated Lender's Certificate: Standard form confirming subordinated debt amounts and terms
5. Schedule 5 - Notice Details: Contact details and notice requirements for all parties
6. Appendix A - Payment Waterfall: Detailed hierarchy of payments in enforcement or insolvency scenarios
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