Examining the LMAs recent changes to real estate finance and intercreditor agreements

The Loan Market Association (LMA) has updated its real estate finance (REF) facility agreements and intercreditor agreements. Amelia Slocombe, legal director of LMA, outlines the main changes in the agreements.

Original news

LMA REF facility and intercreditor agreements updated

To account for changes made to its leveraged documentation in November 2016, the LMA has updated its real estate finance facility agreements and intercreditor agreements.

Which of the LMA real estate finance documents have been updated and why?

We have updated the:

  • single currency term facility agreement for REF multi-property investment transactions
  • single currency term facility agreement for REF development transactions (with the above, the LMA REF facility agreements)
  • LMA intercreditor agreement for REF transactions (structural subordination)
  • LMA intercreditor agreement for REF transactions (contractual subordination only)

What key changes have been made to the LMA REF documents?

The main changes relate to inclusion of the following in the LMA REF facility agreements:

  • an option providing for free transferability by lenders to pre-approved entities (otherwise known as a ‘white list’)
  • various general updates in response to market developments, including the:
    • reflection of international financial reporting standards requirements in the presentation of accounts
    • expansion of the borrower’s obligation to provide documentation for ‘know your customer’ purposes on a change of status/shareholders to such changes affecting non-obligor holding companies (this was to address the possibility of lenders being required to refresh KYC checks on a change of status of an obligor’s holding company which is not itself an obligor)
    • expansion of ‘all lender consent’ matters to cover—changes to the drawdown timetable, changes to the illegality clause, and obligor accession/resignation mechanics
    • updating of the jurisdiction clause to reflect the superseding of the Lugano Convention 1988 by the Lugano Convention 2007
    • expansion of existing sanctions footnotes to representations and undertakings to address the question of amendment of any sanctions provisions
    • expansion of the commercial provisions addressing litigation to more expressly cover the making of judgments
    • redrafting of transfer fee provisions to clarify the transfer fee is only disapplied on transfer to the transferring lender’s affiliate/related fund and not to any affiliate or related fund
    • clarification that the acceleration provisions themselves do not require security to be enforced by way of notice to the borrower, and
    • clarification of voting on an operation of the pro rata interest clause (ie, to make clear that a lender which has transferred its entire commitment but remains entitled, pursuant to the pro rata interest provisions, to receive its share of interest on the following interest payment date, does not have voting rights)

In addition to the above, the LMA REF intercreditors were also updated in line with the leveraged version to:

  • amend the hedging definitions to more clearly fix the amounts hedged by reference to a point in time
  • clarify that the ‘safe harbours’ in the fair value provisions are not mandatory, and
  • reflect the pro rata interest voting provisions in the LMA REF facility agreements

How do these changes compare to the changes made to the LMA leveraged documents in November 2016?

While the majority of the changes introduced to the LMA leveraged documents in November 2016 have been incorporated directly into the REF documents, it is worth noting that (unlike the leveraged) the LMA REF facility agreements do not incorporate the option for the establishment of additional term loan facilities (referred to in the leveraged document as ‘incremental facilities’).

The LMA REF facility agreements also do not include the following additional changes made to the LMA leveraged documents (on the basis that they were either not relevant to these documents or were already included as part of the November 2016 update):

Already included

  • the reformulated reference bank rate definition to reflect the new ICE LIBOR submission methodology, and
  • the inclusion of protections to address the new UK persons with significant control regime (which is relevant where security is taken over shares in UK companies)

Not relevant to LMA REF facility agreements

  • the change to the disposals restriction to clarify that the permission relating to an exchange of an asset for a superior or equivalent asset does not include the exchange of a non-cash asset for cash
  • the removal of alternative reference banks
  • clean-up for permitted acquisitions
  • guarantor resignation (ie, addition of option preventing the resignation of specified guarantors)
  • option to exclude mezzanine fee letters from the senior CPs, and
  • streamlining of tax provisions

Interviewed by Evelyn Reid.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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