Senior loans, mezzanine loans and intercreditor arrangements in real estate finance
Produced in partnership with K&L Gates
Senior loans, mezzanine loans and intercreditor arrangements in real estate finance

The following Banking & Finance practice note Produced in partnership with K&L Gates provides comprehensive and up to date legal information covering:

  • Senior loans, mezzanine loans and intercreditor arrangements in real estate finance
  • The use of intercreditor arrangements and structural subordination in real estate finance transactions
  • Typical senior/mezzanine funding structure and security package
  • Key intercreditor provisions for negotiation
  • Subordination and priority of payments
  • Deepening subordination
  • Permitted enforcement of the senior/common security
  • Permitted enforcement of mezzanine first ranking security (acquisition rights)
  • Cure rights
  • Purchase rights
  • More...

Intercreditor agreements are complicated and detailed arrangements between two or more sets of creditors, requiring careful consideration both in terms of the level of rights and protections each class of creditor gets and to ensure the arrangements work economically in the context of the respective loan arrangements. For information on intercreditor arrangements in a general context, see Practice Notes:

  1. Intercreditor agreement—key provisions

  2. Intercreditor payment priorities and requisite majorities

  3. Senior, mezzanine and junior debt

Intercreditor agreements are frequently seen in real estate finance transactions because many lenders are only prepared to lend up to a specified loan to value (typically in the region of 60–70%, but this can vary according to the nature of the underlying real estate and the ultimate risk profile of the transaction) and often, borrowers require a higher leverage. Mezzanine lenders can assist to fill this funding gap.

While each transaction is subject to commercial negotiation, the mezzanine lender will seek to obtain as broad a set of cure and other protective rights, while the senior lender will seek to restrict the limitations placed on its set of rights and the circumstances in which the mezzanine lender can be protected.

The use of intercreditor arrangements and structural subordination in real estate finance transactions

Often in real estate finance transactions, in addition to the primary loan advanced to fund the purchase of real estate (or refinance

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