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Debt Subordination Agreement
Establish priority of debt repayment among creditors with this Debt Subordination Agreement Template.
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Debt Subordination Agreement Template
This Debt Subordination Agreement (“Agreement”) is entered into on [Date], by and between:
Senior Lender:
Name: __________________________
Address: __________________________
Email: __________________________
Phone: __________________________
Subordinated Lender:
Name: __________________________
Address: __________________________
Email: __________________________
Phone: __________________________
Borrower:
Name: __________________________
Address: __________________________
Email: __________________________
Phone: __________________________
Collectively referred to as the “Parties.”
1. Purpose
The purpose of this Agreement is to establish that the Subordinated Lender’s claims to the Borrower’s assets shall be subordinate to the Senior Lender’s claims, ensuring clear repayment priorities in the event of default or insolvency.
2. Subordination of Debt
The Subordinated Lender agrees that its rights to repayment are junior to the Senior Lender’s rights.
The Subordinated Debt includes all amounts currently owed or to be owed by the Borrower to the Subordinated Lender.
No payment shall be made on the Subordinated Debt unless the Senior Debt has been fully satisfied, except as otherwise authorized by the Senior Lender.
3. Restrictions on Subordinated Lender
The Subordinated Lender shall not:
Accept payments on the Subordinated Debt without Senior Lender consent.
Initiate legal proceedings to collect the Subordinated Debt while Senior Debt remains outstanding.
Secure additional collateral without written approval from the Senior Lender.
4. Representations and Warranties
Each Party represents and warrants that:
It has full authority to enter into this Agreement.
The execution of this Agreement does not violate any other contracts or legal obligations.
5. Default and Remedies
If the Borrower defaults on the Senior Debt, the Senior Lender may exercise all rights and remedies under applicable law.
The Subordinated Lender agrees to take no action that would interfere with the Senior Lender’s collection efforts.
6. Term and Termination
This Agreement remains in effect until the Senior Debt is fully repaid.
Termination requires written consent from all Parties.
7. Confidentiality
All financial information exchanged under this Agreement shall remain confidential and may not be disclosed to third parties without prior consent.
8. Governing Law
This Agreement shall be governed by the laws of [State/Country].
9. Dispute Resolution
Any disputes arising under this Agreement shall be resolved through mediation, and if necessary, binding arbitration.
10. Entire Agreement
This document constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings.
Signatures
Senior Lender Signature: ____________________________ Date: _________
Printed Name & Title: _________________________________________
Subordinated Lender Signature: ____________________________ Date: _________
Printed Name & Title: _________________________________________
Borrower Signature: ____________________________ Date: _________
Printed Name & Title: _________________________________________
Details
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Debt Subordination Agreement
DEBT SUBORDINATION AGREEMENT FAQ
What is a Debt Subordination Agreement?
A Debt Subordination Agreement is a legal document where one lender agrees that their claim to a borrower's assets will be ranked below another lender's claim in case of default or bankruptcy. This establishes a clear repayment hierarchy.
Why is a Debt Subordination Agreement important?
It protects senior lenders by giving them priority in repayment and helps borrowers secure additional financing. It also reduces disputes between creditors by setting legally binding repayment rules.
When should you use a Debt Subordination Agreement?
Use this agreement when multiple lenders are involved in financing the same borrower, especially in mergers, acquisitions, or refinancing situations where debt priority matters.
What should a Debt Subordination Agreement include?
It should include details of the parties involved, the subordinated and senior debts, repayment terms, restrictions on the subordinated lender, and default provisions.
Who benefits from this agreement?
Senior creditors benefit from reduced risk, while borrowers benefit by attracting new financing. Subordinated creditors may gain access to lending opportunities they wouldn’t otherwise have without agreeing to subordination.
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