What Do You Mean by Inter Creditor Agreement

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Company X may be in a contract with government agency Y for the construction of a housing plan for army veterans. The cost of the project is estimated at about $125 million, of which the company is only funding $25 million. As a result, the company is seeking progress from the government and another financial third party. To convince both the government agency and financiers to finance the project, the company uses a high-quality asset as collateral. The junior lender should consider including conditions for the resumption of the project in the agreement if the borrower defaults. When such a situation occurs, the junior lender should be aware that there are usually only two options available: either inject funds into the project to remedy cash shortfalls under the primary lender, or disburse the primary lender. The latter is often almost impossible in cases where the lead lender has provided very large amounts of financing. The agreement could also include restrictions on reimbursement. A subordinated lender might agree that until the senior debt is fully repaid, it will not require repayment, with the exception of interest or any other agreed payment. Before signing the agreement, the subordinated lender must also clarify the definitions of “senior debt” and “subordinated debt”.

It is also common for a primary lender to process the terms of the agreement without getting approval from the junior lender. So the junior lender should also keep an eye on it. A junior lender should apply for an exemption for a specific category of collateral that a lead lender has not included in its asset base. Once it has been agreed that there is a personal guarantee of the borrower`s capital or a guarantee in favour of the junior lender, the junior lender must ensure that the established rights are accurately reflected in the agreement with the creditor and that they do not remain motionless. As a general rule, such an agreement limits the payment that a borrower can make to junior lenders if the borrower defaults based on the terms set out in the agreement with junior lenders. These provisions are called “payment freezes”. This provision even limits the payments to which junior lenders are entitled in the normal course of their work from the borrower, such as interest or usual fees and expenses. (Rupy Cheema): If there is no agreement with creditors and the EB5 loan is a mezzanine loan, what can we generally assume that the remedies available are available to EB5 lenders? If such an agreement is not concluded, each lender will proceed in its own way.

Such a process could prove to be unprofitable and at the same time become a legal mess. With respect to a sale under Section 3.16(a)(ii) or Section 3.16(e) or for the purpose of calculating a profit from the sale, the “purchase price” between the related mortgage and the accompanying loan(s) is divided and equal to that amount, as the case may be, in accordance with the terms of the agreement with the relevant creditor. In such a scenario, the government agency can serve as a junior lender, the financiers as a senior lender, and the company (Y) is the borrower. Since the company guarantees the loan of both financiers with the same property, the main creditor will certainly want to enter into a creditor agreement with the government agency to protect its interests. Such an agreement also contains provisions on redemption rights. This right allows a lender to purchase the claims and privileges of other lenders. Such an option is triggered after certain events, for example. B after the filing of an insolvency case.

(Michael): I think that`s correct, although the question you have to ask yourself when you`re in a subordinate position and you`re considering a creditor agreement is whether that recourse will be a viable recourse for me, which means you can actually do what you need to do to take over the borrower position and complete the project. In addition, it may also happen that the lead lender intentionally delays the approval of the agreement, which can be fair to the junior lender. This could prove frustrating for the junior lender. (Michael): If there is no agreement with the creditors, the remedies available will depend on the collateral provided for the EB5 loan. The inter-creditor agreement is extremely advantageous for subordinated lenders in the event of default by the borrower, as the terms have already been designed in advance, thus eliminating the confusion that can arise in the event of default. A well-drafted agreement will contribute to the proper distribution of guarantees. It is always advisable to conclude an agreement with creditors. This decision involves an understanding of the structure of the company and the relative negotiating position of the principal and subordinated lenders (EB5). Sometimes the lead lender insists on a creditor agreement, and in this case, you obviously need to negotiate this to the best of your ability, but often as a subordinate position, it`s best not to have one. Junior lenders need to pay attention to how and when expected interest payments are madeinterest rateA interest rate refers to the amount a lender charges a borrower for each form of debt, usually expressed as a percentage of principal. . .

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