Opinion ID: 4408545
Heading Depth: 2
Heading Rank: 1

Heading: The debts and the intercreditor agreement

Text: Energy Future Holdings is an electric company in Texas. Its subsidiary, Texas Competitive Electric Holdings Company LLC, owes money to two groups of creditors: one group with debt from 2007, and a second group with debt from 2011. The 2007 creditors’ debt had a lower interest rate than that of the 2011 creditors. The same collateral secures both groups’ debt. That collateral includes almost all the subsidiary’s assets. Neither group of creditors takes precedence over the other; their claims to the collateral have equal priority. An intercreditor agreement governs the relationship between the two groups of creditors. This agreement has a waterfall provision. A waterfall provision sets the order in which parties will receive benefits from an asset pool. Here, the provision describes how to distribute collateral if Energy Future’s subsidiary defaults on its debt. If the subsidiary defaults, and if the creditors must collect on the collateral or sell it to make themselves whole, then the waterfall provision is triggered. And according to the 2011 creditors, the provision gives them a greater share of the payments and distributions at issue. The waterfall provision does not govern every asset the creditors receive. It applies only to “[1] Collateral or [2] any proceeds thereof received in connection with the sale or other 5 disposition of, or collection on, such Collateral upon the exercise of remedies under the Security Documents by the Collateral Agent.” App. 196. The collateral agent is now Wilmington Trust. It can enforce the creditors’ claims on the collateral by, for instance, foreclosing on it, selling it, and distributing the profits to the creditors.