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Understanding the Differences between Facility Agreements, Intercreditor Agreements, and Debentures

Updated: Nov 27, 2023

In the realm of corporate finance, several different types of agreements and instruments are used to secure funding for a business or project. These include facility agreements, intercreditor agreements, and debentures. Although all three of these terms may seem similar on the surface, they each have distinct characteristics and functions.


A facility agreement is a legal contract between a lender and a borrower that outlines the terms and conditions of a loan or line of credit. This agreement typically includes information such as the interest rate, repayment schedule, and any covenants or restrictions that the borrower must adhere to in order to maintain the loan. Facility agreements are commonly used in the UK by banks and other financial institutions to provide funding for a wide range of purposes, such as working capital, acquisitions, and real estate projects.


An intercreditor agreement, on the other hand, is a contract between multiple lenders that outlines the terms and conditions of their respective claims on a common borrower's assets. These agreements are typically used in situations where a single borrower has multiple sources of debt, such as a syndicated loan or a mezzanine financing round. The intercreditor agreement outlines the priority of each lender's claim, as well as any restrictions or covenants that may be placed on the borrower.


Debentures, also called bonds or bonds, are a type of debt security that is issued by a company to raise capital. They are usually unsecured, meaning that the bondholders do not have a claim on specific assets of the company, but only on the company's general assets and profits. Debentures are typically issued to the public through an public offering or a private placement, and they typically have a fixed term and fixed interest rate.


In summary, facility agreements, intercreditor agreements, and debentures are all used to secure funding for a business or project, but they each have distinct characteristics and functions. Facility agreements are used to outline the terms and conditions of a single loan, intercreditor agreements are used to outline the terms and conditions of multiple lenders' claims on a borrower's assets, and debentures are a type of debt security that are issued by a company to raise capital.

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About Langdon Capital

 

With a network of 700+ alternative investors which includes venture capital funds, venture debt funds, corporate VC arms, private credit funds and family offices, Langdon Capital assists innovative and high growth companies with at least £1m in annual revenue growing at a minimum of 30% YoY, raise between £1m and £25m in debt or equity at Series A or beyond.

 

 

About the author

 

Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of debt, equity, M&A and derivatives transactions with global corporates, private equity funds and financial sponsor groups.

 

 

This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.

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