Intercreditor standstills and borrower execution

An intercreditor agreement coordinates creditors’ rights. For a borrower, its practical importance is that one creditor’s approval, payment expectation or enforcement timetable may depend on another creditor. A junior lender’s willingness to amend its loan does not necessarily make the amendment effective under the senior financing, and a standstill does not automatically grant the borrower payment relief.

Start by identifying what each creditor holds: a mortgage lien, another lien on shared assets, an equity pledge or an unsecured claim. A junior mortgage and a mezzanine equity pledge are not interchangeable. The relevant agreements, collateral and governing law determine the available remedies and their interaction.

Distinguish priority from control

The StoneMor intercreditor agreement dated August 26, 2022 is a historical corporate secured-credit example. Section 3.1 addresses enforcement restrictions; Section 4.1 separately addresses proceeds. Its provisions are not a standard CRE mezzanine agreement or a rule for another capital stack.

For the actual transaction, organize the review into four questions. Who receives which payments? Who can enforce against which collateral, and when? Which amendments or transfers require another party’s consent? What cure, purchase or replacement rights exist? Keeping these questions separate prevents a payment-priority chart from being mistaken for a complete control map.

Ask counsel to identify exceptions, preserved actions and insolvency provisions. A restriction on foreclosure may not prohibit every filing or protective action. Conversely, expiration of a stated waiting period may not permit immediate enforcement if another condition continues. A simple countdown is therefore only a starting point.

Worked exhibit: a standstill clock with a delayed start

Assume invented documents provide a 90-day junior enforcement standstill beginning only after both acceleration of the junior loan and receipt of a compliant notice by the senior agent. The junior loan is accelerated on day 0, but the required notice reaches the senior agent on day 10. Under the hypothetical rule, the standstill cannot end before day 100, subject to all additional conditions.

This chronology does not say the borrower can ignore payments until day 100. Assume the property’s operating cash shortfall, after ordinary debt service, is $50,000 in each of the next three modeled months. Maintaining the plan requires $150,000 of additional funding during those months, regardless of the junior creditor’s enforcement delay.

If the junior instrument separately accrues simple 9% interest on $1 million for ninety actual days over 360, that interest is $22,500. Whether it is payable currently, deferred, capitalized or subject to another rate depends on its terms. Do not treat a standstill as an interest holiday or assume unpaid interest is permitted to become principal.

Test the proposed transaction against each authority

Suppose the borrower proposes a sale, junior maturity extension and new senior advance. Each changes a different part of the bargain. The senior agent may need authority for the advance, the junior creditor for its extension, and one or both for a release or transfer. Record the required signatures and conditions rather than using a single “lender approval” status.

A useful authority table lists the action, controlling agreement, decision maker, required consent, evidence of approval and remaining conditions. Add a row for proceeds application. Approval of a sale price does not necessarily approve a different distribution of the sale proceeds.

For an illustrative recovery waterfall, assume a $7.5 million sale, $300,000 of costs paid ahead of debt under the hypothetical terms, $6 million of senior obligations and $2 million of junior obligations. Net proceeds are $7.2 million. The senior receives $6 million, the junior receives $1.2 million and equity receives zero. The junior’s $800,000 unpaid amount is not automatically forgiven; legal claims and recourse require separate analysis.

This simplified waterfall excludes other liens, taxes, accrued amounts and insolvency complications. Its purpose is to distinguish transaction feasibility from stakeholder economics. A creditor can have a reason to negotiate even when another creditor is fully covered, and the borrower should not present a recovery estimate as an agreed settlement.

Keep information and deadlines synchronized

Prepare one controlled financial package with versioned rent rolls, cash flow, capital needs and sources of funds. Track which parties are authorized to receive it and who can speak for each creditor. Conflicting forecasts sent to different participants make coordinated decisions harder and can undermine confidence in the proposed plan.

Document any temporary consent or reservation of rights with its expiration and scope. A junior forbearance does not establish senior forbearance, and a senior waiver does not necessarily remove junior defaults. Counsel should verify the entire chain before the borrower relies on a proposed closing date.

The actionable outcome is a dated rights-and-funding map: the earliest possible actions, conditions that can alter them, approvals needed for the proposed resolution and cash required while it is pursued. That record is more useful than assuming the largest lender controls everything or the standstill provides unconditional time.