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Intercompany Subordination Agreement Template for United States

A legal agreement under U.S. law that establishes the priority of debt payments between related companies within the same corporate group. It determines how different intercompany debts will be ranked and paid, particularly in the event of financial distress or bankruptcy. The agreement ensures that certain intercompany debts are subordinated to others, creating a clear hierarchy of payment obligations and helping to maintain orderly financial relationships within the corporate structure.

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What is a Intercompany Subordination Agreement?

An Intercompany Subordination Agreement is essential when companies within the same corporate group have multiple lending relationships with each other. This document, governed by U.S. law, becomes particularly important during corporate restructuring, refinancing, or when establishing new intercompany lending arrangements. It helps prevent conflicts between affiliated entities by clearly defining payment priorities and protecting senior creditors' interests. The agreement typically includes detailed provisions about payment restrictions, enforcement rights, and bankruptcy scenarios, ensuring compliance with both federal and state regulations.

What sections should be included in a Intercompany Subordination Agreement?

1. Parties: Identification of senior creditors, subordinated creditors, and the borrower/debtor

2. Background: Context of existing debts and reason for subordination

3. Definitions: Key terms including Senior Debt, Subordinated Debt, Payment Default, etc.

4. Subordination: Core provisions establishing debt hierarchy and payment restrictions

5. Payments and Distributions: Rules governing permitted payments and distribution of proceeds

6. Enforcement Rights: Rights and limitations of creditors to enforce their claims

7. Representations and Warranties: Standard representations regarding authority, binding effect, and no conflicts

8. Miscellaneous: Standard boilerplate provisions including notices, amendments, governing law, etc.

What sections are optional to include in a Intercompany Subordination Agreement?

1. Turnover Provisions: Requirements for subordinated creditors to turn over received payments to senior creditors if received in violation of the agreement

2. Bankruptcy Provisions: Specific provisions governing rights and obligations of parties in bankruptcy proceedings

3. Refinancing Provisions: Terms governing refinancing of senior debt and continued subordination obligations

4. Further Assurances: Obligations to execute additional documents or take actions to effectuate the subordination

What schedules should be included in a Intercompany Subordination Agreement?

1. Schedule of Senior Debt: Detailed list of all senior debt obligations including principal amounts, interest rates, and maturity dates

2. Schedule of Subordinated Debt: Detailed list of all subordinated debt obligations including principal amounts, interest rates, and maturity dates

3. Form of Accession Agreement: Template agreement for additional creditors to become bound by the subordination arrangements

4. Notice Information: Contact details and notice requirements for all parties to the agreement

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

United States

Publisher

Genie AI

Cost

Free to use

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