In a senior lender/junior lender scenario, the lenders will
customarily enter into an intercreditor agreement to establish
their respective rights when dealing with a common borrower. The
intercreditor agreement will usually provide a restriction on the
payments that the borrower can make to the junior lenders upon the
occurrence of certain events of default under the senior lender
credit agreement. These provisions are referred to as "payment
blockage" provisions. If a payment blockage provision is
triggered, all payments to the junior lenders will usually be
blocked, even the payments the junior lenders may otherwise be
entitled to receive, such as scheduled interest or ordinary course
fees and expenses.
Payment blockage provisions usually require some negotiation in
an intercreditor agreement. The following elements should be
Triggering: when payment blockage will occur – eg.
more material events of default such as a payment default, a
financial covenant default or an insolvency event;
Blockage period: length of time the blockage will exist
– eg. no more than 180 days in any one year or once per
Notice: whether or not notice is required to be given by the
senior lenders to the junior lenders. Notice is most often required
if the triggering event is a relatively less material designated
blockage event of default.
It is important to note that, in the event that payments to the
junior lenders are blocked, and the borrower makes payments to the
junior lenders during the blockage period, the junior lenders will
be required to pay any amount received from the borrower to the
senior lenders pursuant to the "turnover" clause in the
Danielle completed her LL.B. at Dalhousie
University Schulich School of Law. She obtained a Bachelor of Arts
in Psychology from Queen's University.
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