5. Del. Trust Co. v. Wilmington Trust, N.A. (In re Energy Future Holdings Corp.), 546 B.R. 566 (Bankr. D. Del. 2016): Issue: Whether amounts received by junior lenders were required to be turned over under ICA as “proceeds of collateral.” Ruling: Adequate protection and plan payments were designed to protect creditors from diminution in value of their collateral and were not required to be turned over to senior lender. Lesson: Courts will strictly enforce the express provisions of ICAs in favor of the subordinated creditor and against the senior creditor seeking payment priority, particularly when the payment is not attributable to proceeds of collateral. The parties’ intent must be clearly manifested and consistent in the ICA. Bottom Line Courts repeatedly remind bankers and other deal-makers — vague clauses in ICAs will not withstand scrutiny. If you want to silence junior lienholders, draft “silent second” provisions with crystal-clear, specific wording. These agreements must be drafted (and they are interpreted by courts) with exacting precision — particularly when attempting to limit junior rights in the event of financial distress or bankruptcy. Courts will protect statutory voting rights afforded by the Bankruptcy Code and reject broad language that attempts to silence junior creditors without precise drafting. Facing Distress: Practical Steps for Lenders 1. Due Diligence: Verify existing intercreditor terms before joining complex capital stacks and understand implications for distress and bankruptcy. 2. Understand Consequences: ICAs simply can not be relegated in mind or in practice as ancillary loan documents. It is imperative that bankers and counsel appreciate the significance of these agreements at the front end of any transaction. 3. Inter-Creditor Review: Review existing ICAs for ambiguities or enforcement gaps. Understand how “silent” the “silent-second” lien is under the ICA. 4. Crisis Coordination: In a restructuring, align credit and legal teams to interpret and enforce terms. A senior lender has two primary remedies in the event of a breach by a junior lender under an ICA: (i) seeking judicial involvement, typically in a bankruptcy case compelling enforcement and enjoining prohibited conduct; and (ii) addressing the consequences of breach of contract. 5. Update Templates: Reflect on the lessons from case law in standard documentation. 6. Consider Exit and Dispute Resolution Mechanisms: Include termination, buy-out provisions and pay-down triggers. Consider choice of law, venue and other dispute resolution issues on the front end of any transaction — it is often “boilerplate” … until it’s not. Conclusion As volatility rises in credit markets, well-formulated ICAs become critical defense mechanisms for lender portfolios. The importance of clearly drafted, well-negotiated ICAs cannot be overstated, particularly as credit tightens and market uncertainty grows. These agreements not only guide creditor conduct in distress scenarios but also serve as critical tools for anticipating and managing conflict. Legal and finance professionals must approach them with a sharp understanding of both their strategic implications and their practical enforceability in bankruptcy and beyond. George Singer is a partner in the Denver office of Holland & Hart LLP. His practice emphasizes corporate finance and credit transactions, with a particular focus on structuring complex financings, bankruptcy and financial restructurings. He is a Fellow of the American College of Bankruptcy and routinely addresses intercreditor agreements and issues as part of his practice. George can be reached at ghsinger@hollandhart.com. 1It is not unusual for contractually subordinated creditors to find themselves in a more restricted position than general unsecured creditors in a bankruptcy case. Under many ICAs, junior lenders waive rights that unsecured creditors would ordinarily retain. As a result, subordinated creditors may be bound to silence in key aspects of a bankruptcy case, even as general unsecured creditors retain a voice. Courts often enforce these waivers as a contractual matter, highlighting the critical need for careful negotiation and drafting at the front end of a transaction. 2George H. Singer, The Lender’s Guide to Second-Lien Financing, 125 THE BANKING L.J. (March 2008). 3See, e.g., Wilmington Trust N.A. v. Alter Domus (US) LLC (In re Franchise Group Inc.), 1:24-bk-12480, Dkt. Nos. 192, 274, and 466-69 (Bankr. D. Del. 2025) (first-lien and second-lien lender disputes resulting in bankruptcy litigation addressing scope of ICA and senior lender’s contentions that junior creditor was exercising “enforcement action” in violation of ICA by taking positions adverse to senior lender). 4Accord In re Ion Media Networks, Inc., 419 B.R. 585 (Bankr. S.D.N.Y. 2009) (strictly enforcing broad waiver provision, barring junior lender from object to senior lender’s claims or plan treatment); BOKF, N.A. v. JP Morgan Chase Bank, N.A., 2022 WL 955891 (Del. Ch. Ct. March 30, 2022) (emphasizing strict interpretation of ICA that clearly subordinated junior rights). Contra In re RadioShack Corp., BKY Case No. 15-10197 (Bankr. D. Del. 2015) (finding that ICA will not be read to contain implicit waivers; drafting silence construed against the party seeking enforcement). 5In re Bost Generating, LLC, 440 B.R. 302, 316 (Bankr. S.D.N.Y. 2010) (narrowly construing ICA to permit participation by junior lenders not “engaging in . . . obstructionist behavior.”) 6See, e.g., In re Fencepost Prods., Inc., 621 B.R. 289 (Bankr. D. Kan. 2021). 11 Colorado Banker
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