NIGERIA Trends and Developments Contributed by: Ozioma Agu, David Olajide and Onyinyechi Isikaku, Stren & Blan Partners
• voting and decision-making: establishing thresh- olds for amendments, waivers, and acceleration; and • sharing of recoveries: ensuring equitable distribu- tion of recoveries, particularly during default. These arrangements align the syndicate’s collective interests, enhance transparency, and provide predict- ability in managing distressed scenarios. Understanding the parties and structures in intercreditor arrangements Effective intercreditor arrangements depend on a clear understanding of the parties involved and the structures commonly adopted in multi-lender Nigerian transactions. Beyond the borrower and the primary lenders, several other key participants shape how rights, risks, and obligations are allocated. The borrower This is the entity receiving financing. In Nigerian syn- dicated transactions, borrowers range from large corporates undertaking capital-intensive projects to mid-sized entities consolidating debt. The borrower’s obligations under the various facility agreements are central to the ICA, particularly with respect to cove- nants, repayment priorities, and restructuring mecha- nisms. The lenders A consortium of financial institutions usually provides the financing. These lenders often fall into different tiers, which determine their rights under the ICA. Senior lenders They are typically commercial banks and development finance institutions (DFIs). They provide the largest portion of the financing and enjoy the highest repay- ment priority. Mezzanine lenders They extend hybrid financing with features of both debt and equity. Their claims rank below senior lend- ers but above subordinated creditors. Subordinated lenders These lenders accept the lowest priority in repayment, assuming higher risk in exchange for higher potential
returns. They may include private debt funds or inves- tors willing to provide junior capital. The security trustee/facility agent To avoid complexity and conflicts, Nigerian syndi- cated lending practice typically appoints a security trustee or facility agent to hold security on behalf of all lenders. This ensures that the creation, perfection, and enforcement of security interests are centrally co-ordinated. The trustee also manages releases and enforcement actions, usually acting on the instruc- tions of the majority senior lenders. The Companies and Allied Matters Act expressly allows security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate. Guarantees, par- ticularly those provided by sponsors of the borrower, may be embedded directly within the facility agree- ment or executed as separate documents. Where the guarantee is executed separately, it can be held by the security trustee on behalf of the syndicate of lenders. Once validly appointed and the relevant security has been properly perfected, the security trustee is rec- ognised as the legal holder of the security. In practice, the syndicate may appoint either one of the lenders or a third party to serve as security trustee. In Nigeria, however, a third-party corporate trustee is typically preferred. Such corporate trustees are subject to the Companies and Allied Matters Act (CAMA) 2020 and are regulated by the Securities and Exchange Com- mission and the Corporate Affairs Commission. They operate under a trust deed which defines their rights, powers, and duties. These often mirror the statutory rights available to a receiver under Nigerian law, there- by equipping the trustee to act effectively in situations of default or enforcement. Hedging entities In transactions where the borrower enters into interest rate or currency hedging arrangements, the hedging entities may be included as parties to the ICA. Their inclusion ensures that payments due under hedging contracts are appropriately ranked within the overall payment waterfall. Building robust intercreditor arrangements in Nigerian multi-lender transactions The strength of an intercreditor agreement lies in its core clauses, which define with precision the rights
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