Intercreditor Agreements In Nigerian Financing Transactions: Key Negotiation Battlegrounds

Project finance transactions are, by their nature, capital-intensive and typically funded through a combination of debt instruments drawn from multiple sources: senior lenders, mezzanine financiers, subordinated creditors, and increasingly, development finance institutions.¹ Where a project company owes obligations to more than one class of creditor, an intercreditor agreement becomes indispensable. It is the document that regulates how these creditors relate to one another. It fixes the ranking of their claims, allocates enforcement rights, governs the sharing of recoveries, and prevents one creditor class from taking unilateral action that could prejudice the interests of the others or dissipate the going concern value of the project.

In Nigeria, the relevance of the intercreditor agreement has developed with the country’s rising infrastructure financing needs as project finance has become a vital tool for mobilizing private capital across the power sector, oil and gas, mining, to name a few. Lenders in Nigeria operate within a licensing and regulatory architecture anchored on the Central Bank of Nigeria Act 2007 and the Banks and Other Financial Institutions Act,² while the corporate and security framework is largely governed by the Companies and Allied Matters Act 2020.³ Within this framework, it is now standard practice for multi-tranche facilities to be underpinned by an intercreditor agreement, setting out the ranking, payment and enforcement terms as between the various classes of creditor.⁴

An intercreditor agreement ultimately determines who gets paid, when and in what order. As a result, it is rarely a document on which negotiating parties align easily. While senior lenders seek maximum control and priority, junior and mezzanine creditors seek to preserve value. Sponsors and security trustees sit between both sides, managing operational and fiduciary exposure.

KEY PROVISIONS AND CONTESTED TERRAIN

1. Ranking and the Payment Subordination

The most contested feature of any intercreditor agreement is the order in which the project’s cash flows are applied, commonly referred to as the payment waterfall. Payment subordination means that a subordinated lender agrees to defer payment of some or all of its claims until the senior lender has been paid in full, while security subordination means that the subordinated lender’s security interest in shared collateral ranks behind that of the senior lender.⁵ Senior lenders typically insist on being paid in full before any distribution reaches junior creditors, while junior lenders resist blanket payment blockages that could deprive them of even scheduled interest for extended periods. Under Nigerian law, contractual subordination of this kind is ordinarily recognized and enforceable, and creditors may validly agree among themselves to vary the order of priority or to subordinate their security interests to those of other creditors. In practice, the battleground is less about whether subordination applies and more about its mechanics: the definition of permitted payments, treatment of default interest, and circumstances in which a payment blockage may be triggered and for how long it may subsist.

2. Enforcement Rights and Standstill Periods

Closely related is the question of who controls enforcement following default and for how long junior creditors must stand aside. Most intercreditor agreements restrict a subordinated lender from exercising any rights against shared collateral for a specified period, commonly called a standstill period, while permitting it to take basic protective steps such as accelerating its debt and making a demand for repayment.⁶ The length of the standstill period and the narrow exceptions permitting junior creditors to act during it are always heavily negotiated. This tension is sharpened in Nigeria by the fact that, outside formal insolvency proceedings, a secured creditor may only enforce its security in accordance with the finance and security documents and applicable law, making clear enforcement triggers essential.

3. Voting Thresholds and the Instructing Group

Where a security trustee holds collateral for multiple lenders, the agreement must specify how enforcement and other collective decisions are taken, including: voting thresholds, consent requirements and the composition of the group entitled to instruct the trustee. Disagreement typically centers on what constitutes a majority lender for different classes of decision. Ordinary consents may require a simple majority by value, while fundamental matters such as release of security, extension of maturities or a change to the waterfall are usually reserved for unanimous or near-unanimous consent. Minority creditors push for wide entrenched rights requiring their individual consent, while arrangers push in the opposite direction to avoid a small minority holding the wider syndicate to ransom.⁷

4. Turnover of Recoveries

Turnover provisions require a creditor who receives a payment or recovery outside the agreed waterfall, whether by direct action, set-off or otherwise, to hold that recovery on trust and account for it to the other creditors in accordance with the agreed priority. Most intercreditor agreements require the subordinated lender to turn over to the senior lender any amounts it receives in a liquidation, bankruptcy or insolvency of the borrower.⁸ These clauses are frequently contested, and the parties dispute the mechanics by which turned over amounts are subsequently redistributed.

5. Appointment, Powers and Liability of the Security Trustee

The law recognizes the security trustee, typically appointed under a security trust deed to hold security on behalf of one or more lenders, enforce rights and apply proceeds in accordance with the agreed intercreditor terms. Corporate trustees performing this role in Nigeria are subject to regulatory oversight by the Securities and Exchange Commission.⁹ Appointment of a security trustee is strongly preferred in multi-lender financings because it enables transparent, orderly and collective enforcement that protects the interests of all secured creditors. Nonetheless, the scope of the trustee’s duties, its standard of care on enforcement or disposal of collateral and the extent of the indemnity it may draw from the secured assets before accounting to lenders are recurrent flashpoints. Creditors want a trustee who will act robustly and quickly, while the trustee, understandably, wants broad exculpation and a first-ranking indemnity before taking any enforcement step.

CONCLUSION

Disputes of the kind described above are inherent to the intercreditor agreement itself. It is negotiated by creditors whose commercial interests are structurally opposed, since each class seeks to maximize its own recovery and control at the expense of the others. In many negotiations, the senior lender dictates the terms because of an inherent imbalance of bargaining power, and a junior lender who fails to negotiate the document strongly may find itself at a disadvantage in a downside scenario. Add to this the size and complexity of modern syndicated project financings in Nigeria, often involving domestic banks, development finance institutions and international lenders with differing approval processes and risk appetites and a measure of friction becomes practically unavoidable.

That said, the frequency and severity of disputes can be meaningfully reduced. First, parties are well served by adopting internationally recognized precedent for the payment waterfall, standstill and turnover mechanics, adapted carefully to law, rather than negotiating these provisions from a blank page. Second, the payment waterfall, standstill periods and voting thresholds should be drafted with maximum precision and minimal reliance on undefined language, since ambiguity at the drafting stage is the single greatest driver of later disputes. Third, appointing an experienced, independent and adequately indemnified security trustee, rather than leaving enforcement coordination to an interested syndicate member, materially reduces the risk of allegations of self-interested conduct. Fourth, given the residual uncertainty as to the treatment of contractual subordination on formal insolvency, parties should give real thought, at the drafting stage, to complementary structures, such as properly perfected security and turnover trusts, that do not depend solely on contractual priority for their effect. Finally, embedding a clear, tiered dispute resolution mechanism, commencing with structured negotiation among the creditor classes and escalating, where necessary, to expert determination or arbitration, allows commercial disagreements to be resolved without derailing the underlying project, and remains one of the most effective safeguards available to parties operating within Nigeria’s evolving project finance landscape.¹⁰

Footnotes

1. The World Bank, ‘Intercreditor Arrangements in Public-Private Partnerships’ < https://ppp.worldbank.org/intercreditor-arrangements > accessed 1 August 2026.

2. Central Bank of Nigeria Act 2007; Banks and Other Financial Institutions Act 2020 (as amended in 2023).

3. Companies and Allied Matters Act 2020.

4. Corporate Finance Institute, ‘Intercreditor Agreement: Overview, Significance, Key Provisions’ < https://corporatefinanceinstitute.com/resources/commercial-lending/intercreditor-agreement/ > accessed 1 August 2026.

5. Wall Street Mojo, ‘Intercreditor Agreement: What Is It, Vs Subordination Agreement’ < https://www.wallstreetmojo.com/intercreditor-agreement/ > accessed 2 August 2026.

6. Ibid 5.

7. Gabriel Lip, ‘Intercreditor Agreement’ < https://corporatefinanceinstitute.com/resources/commercial-lending/intercreditor-agreement/ > accessed 2 August 2026

8. Ibid 5.

9. Investments and Securities Act 2025

10.Ibid 1.

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