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Agreement Among Lenders (AAL)

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Quick Answer

An Agreement Among Lenders is the contract between the tranches inside a unitranche facility, and the borrower is typically not a party to it.1,2

What it is

It allocates the interest and fee skim between first-out and last-out, assigns enforcement direction rights, caps protective advances, limits additional debt, sets amendment voting by tranche, and names the events that shift the waterfall from first-out-then-last-out ordering. None of that appears in the credit agreement the borrower signs.1,2

Operational context

What good looks like

Why It Matters

When a facility gets stressed, who can accelerate and who can block an amendment is decided by a document the borrower never negotiated. Knowing the AAL exists is what turns an unexplained lender position into a predictable one.1

Related Questions

Is the borrower a party to the AAL?

Typically no — the borrower is usually not a party to the Agreement Among Lenders.

Browse all questions →

Frequently Asked Questions

What is Agreement Among Lenders (AAL) in venture capital?

It allocates the interest and fee skim between first-out and last-out, assigns enforcement direction rights, caps protective advances, limits additional debt, sets amendment voting by tranche, and names the events that shift the waterfall from first-out-then-last-out ordering.

Why is Agreement Among Lenders (AAL) important for startups?

Understanding Agreement Among Lenders (AAL) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.T3-05 — Mayer BrownAgreements Among Lenders and Unitranche Facilities — a Fresh Look at a Trending Product (Nov 2023)Mayer Brown(An Agreement Among Lenders is the contract between the tranches inside a unitranche facility, and the borrower is typically not a party to it.)secondary · T3 · debt-capital-structure · document
  2. 2.T2-07 — Loan Market AssociationLMA unitranche intercreditor agreement (recommended form)Loan Market Association(An Agreement Among Lenders is the contract between the tranches inside a unitranche facility, and the borrower is typically not a party to it.)primary · T2 · debt-capital-structure · document
  3. 3.T3-06 — Proskauer RoseProskauer Represents Private Credit Funds on New LMA Unitranche Intercreditor AgreementProskauer Rose(An Agreement Among Lenders is the contract between the tranches inside a unitranche facility, and the borrower is typically not a party to it.)secondary · T3 · debt-capital-structure · document

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