Anti-subordination clause
Factual definition
An anti-subordination clause is a contractual restriction on changes to lien or payment priority. Its coverage, exceptions and consent requirements depend on the agreement.
Test whether the new lien requires affected-lender consent
Hypothetical: assume a credit agreement requires each affected lender’s consent before subordinating its lien priority, with no relevant exception. A proposed new senior lien requires those consents under that clause.
A different agreement may use a different threshold or protect different priorities.
Why a majority vote may not be enough
Extend the hypothetical above to a US$100 million loan: lenders holding US$60 million support a new senior lien and lenders holding US$40 million oppose it. Assume ordinary amendments require more than 50% of commitments, but the existing clause requires every affected lender to consent to lien subordination.
The supporting lenders have the ordinary amendment majority. They still cannot use that vote alone to satisfy the separate affected-lender consent requirement in this example.
The economic issue appears when collateral is insufficient. If US$70 million of collateral must first repay a permitted US$20 million senior claim, only US$50 million remains for the original US$100 million loan, ignoring enforcement costs and all other claims.
An anti-subordination clause restricts a change in priority. A subordination agreement instead establishes a creditor’s agreed lower priority; a restriction on transferring collateral addresses a different route by which lender protection can weaken.
The Fifth Circuit’s Serta opinion illustrates why exceptions matter: it held that the transaction did not fit the particular agreement’s open-market-purchase exception. That holding does not make every majority-approved financing invalid or give every lender an individual veto.
Where Anti-subordination clause fits
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