intercreditor agreement

Ruling confirms majority noteholder should not be disenfranchised from voting

By Simon J. Baskerville, Sophie J. Lamb QC, Bradley J. Weyland, and Eleanor M. Scogings

The English High Court held that it had jurisdiction in a cross-border dispute involving the Norske Skog group (Norske Skog), and confirmed that a majority noteholder did not “control” the debtor companies and was therefore not excluded from being part of the “instructing group”. The case also confirms the ability of the English courts to rule in relation to issues of both New York law and English law. These rulings reassured observers active in European leveraged finance transactions, who have long believed that courts should interpret and approach this suite of contracts in exactly this way.

Case Background

In 2015, Norske Skog, a large Norwegian group of manufacturing companies engaged in the paper industry, issued senior secured notes (the Notes) pursuant to a New York law governed indenture. As is typical with leveraged finance structures, the company also entered into an intercreditor agreement (ICA) governed by English law. The ICA allows the flexibility for multiple secured creditor classes under various instruments to benefit from the security. Further, the ICA governs the relative priority of such creditors and other liabilities, as well as the ability to instruct the security agent in case of a default scenario.