What is an intercreditor agreement and why would two lenders to the same company sign one?

An intercreditor agreement is a contract between two or more lenders who both have security interests in the same corporation's assets, setting out their relative priorities, how enforcement will be handled if the corporation defaults, and how any recovered proceeds will be shared or applied between them. It's broader than a simple subordination agreement, often covering standstill obligations, consent rights over enforcement steps, and a detailed payment waterfall.

Lenders sign one because the Personal Property Security Act's default priority rules, while providing a general framework, don't address every practical question that comes up when two lenders are both secured against overlapping collateral and the corporation runs into trouble — who can enforce first, whether one lender needs the other's consent before taking enforcement action, and exactly how proceeds get split. Negotiating these terms in advance, before there's a default, avoids a scramble between the lenders at the worst possible time. For the corporation, an intercreditor agreement being in place is generally a good sign that its lenders have already worked out how they'd coordinate, reducing the risk of the lenders' own disputes complicating a workout or enforcement process.