Documentation

The subordination is normally executed contractually between the parties, whereby the senior lender and the mezzanine lender sign an ‘Intercreditor Agreement’ that regulates their relationship. It is usually agreed that all claims of the bank, i.e. loan principal and interest, shall rank ahead of the mezzanine loan. Both parties make their independent loan agreements but often the terms are harmonized. The covenants of the mezzanine lender are, however, less restrictive than those of the senior lenders.