Intercreditor Agreement Mezzanine Financing

Intercreditor Agreement Mezzanine Financing

In addition, it is generally true that the triggers that allow high-level lenders to send an insolvency notice to mezzanine lenders to suspend these payments are: business bankruptcy; violation of a financial federation; non-payment to priority lenders. It is important to ensure that the requirements of the Intercreditor contract for the mezzanine lender (or its agent) in the event of a default are verified on a case-by-case basis to reflect its mortgaged capital security (which typically represents 100% of the limited liability company`s shares in the mortgage borrower). One of the main candidates for formal enforced enforcement under the interbank agreement is who will be the replacement guarantor under the mortgage and when replacement guarantees (usually, if not always, a non-recourse guarantee and an environmental compensation guarantee) will have to be enforced. Typically, a mortgage lender requires its new mortgage lender to have a minimum asset and alternative liquidity and guarantees when the mezzanine lender (or its assignor) has realized on the mortgage borrower after the credit guarantee or the control of voting rights exercised by other means. In addition to increasing the likelihood of a guarantee repayment, a replacement guarantee provider with significant assets increases the likelihood of a repayment under a guarantee, but it is also less likely that such a replacement guarantee provider will jeopardize its assets by bringing remedies, resulting in, for example, the mortgage borrower`s insolvency. However, it is important that the mortgage lender does not arbitrarily discuss the level of compliance with the financial obligations that it will need from the replacement guarantee in a fair and realistic manner. From Mezzanine`s point of view, this additional guarantee serves as protection against the sponsor who makes a deal with the executive lenders at the expense of mezzanine lenders. The additional fees give mezzanine lenders additional influence in negotiations with the sponsor and senior lenders and give them a place at the table in a training situation, as the “owner” of the borrowing group. In general, traditional mezzanine financiers are not entitled to returns on their investments until priority debtors giving their holders are fully compensated. Because of its subordinated position, the mezzanine loan has a higher risk profile than priority debt, while maintaining a less risky position than preferred equity. With this understanding, mezzanine bond investors are looking for returns between priority lenders and preferred equity investors, but much of this will depend on the structure of the deal. It is relatively common for lenders, in inter-creditor agreements, to force priority lenders to sell their debts at face value (“remove seniors”). However, it remains a controversial topic (particularly for a debtor), as this would allow mezzanine lenders to control the implementation process and could have a different strategy than priority creditors.

However, there are very few cases where such a right has actually been exercised by mezzanine lenders in a context of difficulties, as mezzanine lenders often have the option of purchasing priority lenders on the secondary market (and sometimes under par).