As the market for so-called “unitranche” credit facilities continues to increase, the Delaware Bankruptcy Court had an opportunity recently to answer positively the question of whether bankruptcy courts will enforce the Agreement Among Lenders (“AAL”) (a form of intercreditor agreement) used in such structures. Unitranche facilities (sometimes also referred to as “First Out/Last Out” credit facilities) typically use one credit agreement secured by a single lien on the borrower’s assets, but also have a separate AAL that divides the lenders into two or more groups with different payment, voting, and other intercreditor rights and priorities. Commonly, the borrower is not a party to or even aware of the terms of the AAL. Unitranche transactions differ in important respects from traditional first/second lien credit facilities and thus create noteworthy challenges for secured lenders.

An important question in unitranche financing is whether a bankruptcy court will exercise its jurisdiction to enforce and construe an AAL in a borrower’s bankruptcy case where the borrower is not a party to the AAL. In a recent oral ruling in the RadioShack bankruptcy case, the Delaware Bankruptcy Court implicitly recognized the court’s ability to construe and enforce the AALs at issue.