The LMA has published a second real estate finance form of intercreditor agreement – the “Intercreditor Agreement for Real Estate Finance Transactions (Senior/Mezzanine – contractual subordination only)” (or REF Contractual ICA).
The REF Contractual ICA assumes a structure where the Senior and Mezzanine Finance Parties lend to the same borrowers and share security (held by a single security agent). Security is granted by the parent company, borrowers and shareholder (the latter granting security over its shares in the parent company and over any shareholder debt). In this, it addresses the structure where the mezzanine debt is contractually subordinated only and not also structurally subordinated.
It also assumes that subordination of debt between the shareholder and parent company and between the parent company and borrowers is regulated by a separate subordination agreement (or agreements).
For a structure where Mezzanine Finance Parties are lending to a holding company above the borrowers, the original LMA real estate finance intercreditor agreement for senior and mezzanine transactions is still the suggested form.
Response to market demand
The LMA has said that the REF Contractual ICA was “…proposed in response to demand from members documenting smaller to mid-sized transactions in the regional real estate finance market who were increasingly seeing loans provided via a combination of senior and mezzanine finance and ranked by way of contractual subordination only and with common security.” The agreement has been welcomed and it seems likely it will be heavily used in this market.
As is usual with LMA documents, it comes with the health warning that it is a template suggested form only and must be amended to fit the transaction. It is accompanied by a User Guide that gives more detail as to the background and assumptions of the agreement.
The REF Contractual ICA and User Guide are available to LMA members on the LMA website.
For more information, email firstname.lastname@example.org.