What Is an Agreement Among Lenders?

An Agreement Among Lenders (AAL) is a contractual document used in syndicated lending and other multi-lender financing arrangements to establish the relationship, rights, and obligations among multiple creditors who have collectively extended credit to a borrower. Unlike a loan agreement, which governs the relationship between the borrower and the lenders, the AAL is focused solely on inter-lender coordination. It addresses issues such as decision-making authority, enforcement actions, sharing of payments, and priority of claims, particularly in distressed scenarios.

The AAL is particularly relevant in unitranche financings, a structure in which a single tranche of debt is extended but economically divided among lenders with different risk-return profiles. In this context, the AAL governs how the "first-out" and "last-out" lenders interact, even though the borrower sees a single credit facility.

Purpose and Function

The primary purpose of an AAL is to maintain order and clarity in a credit arrangement involving multiple lenders with potentially divergent interests. It serves to:

• Prevent intra-lender disputes by clearly allocating rights and obligations.
• Create a mechanism for collective decision-making in matters such as amendments, waivers, and enforcement.
• Define waterfall provisions for how payments, recoveries, and proceeds from collateral are distributed.
• Establish voting thresholds and veto rights for various lender groups.

By setting expectations and rules for conduct among lenders, the AAL helps ensure that the lenders act in a coordinated and predictable way, especially during borrower distress or default.

Common Provisions

An AAL typically contains several key provisions that shape lender dynamics throughout the life of the loan. One of the most critical is the waterfall or priority of payments clause, which determines the order in which lenders are repaid. In unitranche structures, this often translates into “first-out” lenders receiving payments before “last-out” lenders, regardless of the uniformity of the borrower’s repayment stream.

Another essential section is the voting rights and control provisions, which clarify how decisions are made when changes to the loan structure are required. These may include:

• Requiring supermajority or unanimous consent for amendments that impact payment terms.
• Granting control rights to specific lender classes (e.g., first-out lenders may have greater influence in early-stage default scenarios).
• Assigning authority to a designated agent or administrative party to act on behalf of all lenders.

The AAL also commonly outlines rules on enforcement actions, ensuring that individual lenders cannot independently take action against the borrower without group consent. This restriction supports a unified creditor front and avoids conflicting recovery efforts.

Role in Unitranche Financing

Unitranche facilities blur the traditional lines between senior and subordinated debt by combining them into a single loan agreement. Although the borrower signs one agreement, internally, the debt is stratified. The AAL functions behind the scenes to define the internal hierarchy of claims, set governance rules, and allocate responsibilities among participating lenders.

The AAL is not typically disclosed to the borrower, nor is the borrower a party to it. As a result, borrowers often experience a more streamlined process while the lenders maintain their negotiated protections through the AAL.

For example, if a borrower defaults, the AAL will dictate which lender class has the right to initiate enforcement and in what order recoveries are distributed. This clarity can be especially important to private credit funds, business development companies (BDCs), and direct lending institutions involved in complex or middle-market deals.

Legal and Practical Considerations

The AAL is a private agreement and does not have a standardized format. Its terms are often heavily negotiated and customized based on the transaction’s complexity, lender group dynamics, and credit risk. Legal counsel for each lender class usually plays a critical role in drafting and reviewing the AAL to ensure that economic interests and governance expectations are properly documented.

Another consideration is confidentiality. Because the borrower is usually not privy to the AAL’s contents, any implications for borrower rights or collateral treatment must be carefully reviewed in the overarching loan documentation to avoid inconsistencies or conflicts.

Finally, the AAL must be structured in a way that will withstand potential legal challenges, particularly in bankruptcy. Courts may scrutinize whether the waterfall and enforcement terms are enforceable, equitable, and consistent with broader lender conduct standards.

Historical Context and Evolving Use

While intercreditor agreements have long been used in syndicated loans involving distinct senior and subordinated tranches, the rise of unitranche financing—particularly after the global financial crisis—led to greater reliance on the AAL format. It offered a way to simplify borrower documentation while preserving economic differentiation among lenders.

As direct lending continues to grow, especially in private equity-backed buyouts, the AAL remains a favored tool for structuring flexible credit arrangements without fragmenting control or overwhelming borrowers with multiple loan agreements.

The Bottom Line

An Agreement Among Lenders is a foundational contract in multi-lender and unitranche financings that governs how lenders interact with one another. It does not involve the borrower directly but plays a central role in defining repayment priorities, decision-making protocols, and enforcement rights among creditor groups. By establishing clear rules and mechanisms for coordination, the AAL enables complex financing structures to function efficiently and with reduced conflict, particularly during times of borrower stress or restructuring.