The Loan Market Association (LMA) has made several announcements recently:
Real Estate Finance (REF)
A recommended form of intercreditor agreement for REF transactions has been issued, together with a users guide. The agreement, which is for use in connection with the LMA’s facility agreement for multi-property investment transactions, is primarily for use in a transaction where senior and mezzanine creditors are providing finance to the same borrower or borrower group.
The agreement assumes a corporate, loan and guarantee, security and subordination structure. As with all LMA documents, the agreement is intended to act as a starting point for drafting the legal documentation for relevant REF transactions, and will need to be tailored to particular circumstances.
The USA has introduced the Foreign Account Tax Compliance Act (FATCA) to combat the use of offshore accounts by US taxpayers to evade US tax, as discussed in a previous blog post, FATCA applies to foreign financial institutions (FFIs), which are very widely defined and cover not only banks and insurance companies, but also trust companies, pension plans, private equity funds and family investment vehicles. The obligations under FATCA, including that of disclosing information to the US tax authorities, apply to all financial accounts maintained by an FFI for US persons. However, FATCA does not impose a direct legal obligation on FFIs to disclose information – instead, payments of US source income will be subject to a 30% withholding tax unless the relevant FFI complies with FATCA.
FATCA applies to payments of interest and certain other payments from US sources made on or after 1 July 2014. The LMA originally published FATCA guidance in 2012, but has recently issued suggested clauses for inclusion in loan documents for investment grade, leveraged and REF transactions. The general thrust of the clauses is that all parties are entitled to withhold tax when required to do so by FATCA and do not need to gross-up payments.
Possible lender issues
Any lender which is not FATCA-compliant risks receiving interest net of FATCA withholding. Any such withholding would only apply where a borrower is resident for tax purposes in the USA or makes a payment from US sources – even if these conditions do not apply at the outset of a relationship, it may become market practice to take representations from borrowers that are not likely to be US borrowers that they are indeed non-US borrowers.
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