March 14, 2025 - In 4Q24, we circulated a draft of the Model Pari Passu Intercreditor Agreement and received a couple of comments which we have addressed in the attached exposure draft. As highlighted previously, we are collaborating on this draft agreement with the Syndications and Lender Relations Subcommittee of the American Bar Association’s Commercial Finance Committee. We will, therefore, delay final publication of the agreement until the end of April to give that subcommittee an opportunity to review it at their ABA in-person meeting next month in New Orleans.
As noted earlier, this agreement is primarily based on pari passu intercreditor forms predominately used in the market today. It has been drafted to be used for first lien facilities but can easily be modified. Many of the provisions of this agreement (including the preamble, background, certain definitions and interpretive provisions and the miscellaneous provisions appearing in Article V), as well as certain formatting and stylistic attributes, are modeled after analogous portions of the LSTA Form of First Lien/Second Lien Intercreditor Agreement which was published in 2024.
The term “pari passu” comes from Latin and means “on equal footing” or “at the same rate”. Thus, in the context of a pari passu intercreditor agreement, “pari passu” means that the creditors involved will be treated equally in terms of priority when it comes to receiving payments or proceeds from the debtor’s assets. If the borrower defaults or files for bankruptcy, the agreement sets out the rights of the parties to the collateral of the borrower. In this First Lien Pari Passu Intercreditor Agreement, the parties have set forth their rights and remedies with respect to the collateral securing the first lien obligations. The Form addresses the relative priorities in that collateral, enforcement of that collateral, issues that may arise in a bankruptcy proceeding, the releases of collateral, as well as other ancillary matters. The agreement ensures that multiple lenders will share equally in the distribution of payments or proceeds from a distressed borrower. Pari passu intercreditor agreements will establish one series among the class as the “controlling” series. In a pari passu bank deal, the agent will typically control.
Brian Rock of Latham & Watkins has advised us on this project, and I would like to thank him for his excellent advice.
