Meaning and transaction use
A filed intercreditor agreement states that the first lender's lien on shared collateral has first priority and the junior lender's lien is subordinate, subject to the agreement's exceptions. [S1]
SEC-filed fund disclosure warns that collateral may lose value and that security does not guarantee payment or collection on enforcement. [S2]
Proposed review method: map every obligor, asset, guarantee, filing, control agreement, exclusion, permitted lien, priority cap, voting right and enforcement step before assigning recovery value.
Worked example
Illustrative recovery waterfall only. Assume net collateral proceeds of USD 18 million, a USD 15 million first-lien claim and a USD 7 million second-lien claim.
Scroll the table horizontally to view all columns.
| Item | Calculation | Result |
|---|---|---|
| First-lien recovery | min(15, 18) | USD 15 million |
| Residual proceeds | 18 - 15 | USD 3 million |
| First-lien recovery rate | 15 / 15 | 100.0% |
| Second-lien recovery | min(7, 3) | USD 3 million |
| Second-lien recovery rate | 3 / 7 | 42.9% |
The first-lien claim is paid in full in the illustration. Actual priority and proceeds depend on perfected rights, documents, costs and law.
Proposed transaction review process
Map obligations
Identify debt, hedging, cash-management and priority caps.
Map collateral
Confirm ownership, eligibility, exclusions, value and guarantees.
Verify priority
Review security, perfection, permitted liens and intercreditor terms.
Stress recovery
Apply costs, haircuts, timing and the contractual waterfall.
Evidence checklist
Finance documents
Facility, notes, guarantees and fee letters.
Security evidence
Security agreements, filings, registrations and control.
Intercreditor evidence
Priority, voting, standstill, turnover and release terms.
Collateral evidence
Valuations, ownership, insurance and enforcement analysis.
Decision framework
| Situation | Proposed action |
|---|---|
| An asset lacks perfected security | Exclude or haircut it until the defect is cured. |
| Permitted liens rank ahead | Deduct them in the recovery waterfall. |
| Collateral value falls | Recalculate coverage and covenant headroom. |
| Enforcement is proposed | Follow control, standstill, notice and turnover provisions. |
Common errors to check
- Treating first lien as first priority over every asset and claim.
- Using gross collateral value as recovery.
- Ignoring perfection and permitted liens.
- Assuming secured status guarantees repayment.
Verify first-lien priority
Bring the facility, security, perfection, intercreditor and collateral evidence to a first-lien review. Test priority and recovery asset by asset.
Discuss the transactionPrimary references and editorial scope
- SEC-filed intercreditor agreement
Contractual first and second lien priorities. Reference checked 17 September 2026. - SEC filing: loan and lien risks
Collateral-value and secured-recovery limitations. Reference checked 17 September 2026.
General private-credit education. Figures are hypothetical. Priority, perfection, enforcement and insolvency outcomes depend on documents, facts and law.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
