Glossary term
Agreement Among Lenders (AAL)
An agreement among lenders is a contract that sets payment, voting, and enforcement rules among lenders in the same financing structure.
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What Is an Agreement Among Lenders?
An agreement among lenders, or AAL, is a contract that sets the rights and responsibilities of lenders participating in the same financing structure. It is often used in unitranche, syndicated, or layered credit arrangements where multiple lenders need one set of rules for priority, voting, enforcement, and payment sharing.
The borrower may see one loan facility, but the lenders behind that facility may have different risk exposures. The AAL governs how those lenders behave with one another if the borrower performs, defaults, refinances, sells collateral, or enters bankruptcy.
Key Takeaways
- An AAL governs relationships among lenders in a shared credit structure.
- It can allocate payment priority, voting rights, buyout rights, and enforcement control.
- It is common in unitranche and other multi-lender financing arrangements.
- The agreement affects lender economics even when the borrower sees one credit facility.
- Borrowers should understand how lender coordination can affect amendments, defaults, and workouts.
How an AAL Works
The agreement defines how lenders share payments, losses, fees, collateral proceeds, and decision rights. It may designate a first-out and last-out tranche, set waterfall mechanics, or establish which lender controls remedies after a default.
An AAL is related to an intercreditor agreement, but the terms are deal-specific. In some unitranche structures, the borrower signs one credit agreement while the lenders use an AAL to divide economics and control behind the scenes.
Common AAL Provisions
Provision | What it governs |
|---|---|
Payment waterfall | How cash and recoveries are shared among lenders. |
Voting rights | Which lender approvals are needed for amendments or waivers. |
Enforcement control | Who can direct remedies after default. |
Buyout rights | Whether one lender can buy another lender's position. |
Loss allocation | How shortfalls are absorbed across lender classes. |
Borrower and Investor Context
For borrowers, the AAL can affect how quickly lenders can approve amendments, waive defaults, or negotiate a restructuring. Even if the borrower is not a party to every lender-side provision, the lender group's internal rules can influence outcomes.
For credit investors, the AAL helps define the true risk of a loan position. Two lenders in the same facility may have different expected returns because they sit in different payment or control positions.
The Bottom Line
An agreement among lenders sets the operating rules among lenders in a shared financing. It matters because payment priority, control rights, and workout leverage can depend as much on lender-side agreements as on the borrower's main loan document.