But from the senior`s point of view, if mezzanine lenders get the additional stock guarantee, they risk imposing HoldCo`s shares and taking control of the company. This often results in a change of control in the preferred lenders` facility contract, which can then lead to a mandatory down payment – consequences that are rarely in the interest of either group of creditors. Francis Wilks-Jones has a team with legal expertise in bidding advice and bid agreements. We are experts on all matters relating to subordination agreements, including the development and negotiation of the subordination agreement. If or when priority lenders come to sell the assets on which they have collateral, they will generally want to sell them freely of mezzanine debt. The mechanism for the release of this mezzanine debt is a matter of controversy, as the agreement between the creditors tends to give the security guard the flexibility to release the main debt, security and guarantees. It is relatively common for lenders, in inter-creditor agreements, to force priority lenders to sell their debts at face value («remove seniors»). However, it remains a controversial topic (particularly for a debtor), as this would allow mezzanine lenders to control the implementation process and could have a different strategy than priority creditors. However, there are very few cases where such a right has actually been exercised by mezzanine lenders in a context of difficulties, as mezzanine lenders often have the option of purchasing priority lenders on the secondary market (and sometimes under par).
Insolvency subordination: This is another important provision to defer the subordinated creditor`s claims on the claims of the priority creditor in the event that the borrower group is liquidated. The junior creditor`s agreement for this deferral is generally in addition to the junior creditor`s obligation not to pay the junior debt in an insolvency proceeding until the priority debt is fully settled.