The cure obligation in an intercreditor agreement has a dollar ceiling almost nobody checks before they sign
A sponsor I was reviewing documents for this week had a mezz position where the intercreditor gave the mezz lender the right to cure a senior default, but the cure right was capped at two consecutive months of debt service on the senior. The senior loan was a twelve-million dollar construction facility. Two months of interest at the senior rate came to roughly ninety thousand dollars. The mezz lender had deployed four hundred thousand into the deal. If the senior called a default in month three of a prolonged draw dispute, the mezz lender's cure right was already exhausted before the dispute resolved. The right existed on paper and was functionally worthless against any default that ran longer than sixty days. What I want the room to think about is whether that ceiling was negotiated or just accepted because it sat in a standard intercreditor template that nobody pushed back on. The cure right language is the paragraph that separates a protected mezz position from one that only looks protected until the senior decides to accelerate. If you are reviewing a mezz position right now, find the sentence that sets the cure cap and check whether the number bears any relationship to the size of the senior facility or the realistic timeline of a construction dispute. What cure cap did your intercreditor actually give you, and did you model what happens when a default runs past it?
