What is the purpose of an intercreditor agreement between lenders?

• A. It is to allocate and regulate priority, remedies, and lien rights among multiple secured creditors.
• B. It is to set interest rates across all loans.
• C. It is to merge all liens into a single lien.
• D. It is to cancel all subordinate liens.

Answer: (A)

When multiple secured lenders hold liens on the same borrower’s assets, an intercreditor agreement coordinates how those interests interact. It clearly defines who has priority to the collateral if the borrower defaults, how proceeds from any liquidation or enforcement are shared (the order of payment), and what remedies each lender can pursue and under what conditions. This agreement also lays out rights and restrictions around actions that could affect the collateral, such as taking enforcement steps, releasing liens, or refinancing, so the lenders don’t undermine each other’s positions. By setting the rules for priority, remedies, and lien rights, it prevents costly disputes and keeps financing structures workable even when more than one lender is involved.

The other options don’t fit because this agreement isn’t about setting interest rates, merging all liens into a single lien, or canceling subordinate liens. Its purpose is coordination and clarity of priorities and remedies among secured creditors.