Intercreditor Agreement Mezzanine

High-level lenders may be irritated by any restrictions imposed by a mezzanine lender on their debts. However, changes in priority debt (particularly quantum debts facing a mezzanine lender) represent a real risk to the mezzanine lender and the financial viability of the financing they provide. A mezzanine lender may require certain restrictions on priority debt, such as. B: The inclusion of a right of redemption for the mezzanine lender to acquire priority debt securities as a common denominator is increasingly common in interbank communications. Prima facie, a right of redemption seems to be a win-win situation for all parties; with the senior lender able to end the troubled transaction on an equal footing, and the mezzanine lender (which has a higher risk profile) able to assume responsibility for its own fate on the deal. The Intercreditor agreement will also specify when and what provisions of the loan file cannot be changed or amended without the consent of the opposing lender. As a general rule, the mezzanine lender has significant rights. B to approve the proposed changes in the priority loan document, as the priority loan expires. These approval fees are significantly reduced if the priority loan is late and/or is not cured by the mezzanine lender. Depending on the nature of the agreement, the underlying credit documents may include additional concepts that a party wishes to include in the standard list of provisions that cannot be amended without its prior consent. It is customary for the agreement of the other lender to be necessary for changes in the loan securities that increase the borrower`s financial obligations or affect the performance of the underlying property or reduce the likelihood of repayment of the opposing lender. Payments that mezzanine lenders can make in normal transactions can be challenged from the outset. It is generally accepted that the payment of capital interest and PIK is not permitted, but that fees, cash interest and increased fees should be made.

The ability to cure defaults under mortgage credit is an essential part of the intercreditor agreement for any mezzanine lender. Mortgage lenders will not deny that mezzanine lenders must have these rights, but the duration of the healing period or the total number of healing events will often be discussed. It goes without saying that the longer the mezzanine lender can deter the mortgage lender from exercising its enforcement rights under mortgage documents, since the mezzanine lender exercises its healing rights, the better it is for the mezzanine lender, especially in states that allow a streamlined or rapid mortgage lock-in process.