What are the parties to real estate finance?

The roles of the arrangers, lenders and agents are essentially the same in LMA REF facility agreements as in the LMA Primary Document.  The roles of the security agent and hedge counterparty are modeled on the LMA leveraged agreement and intercreditor agreement for leveraged acquisition finance transactions.

The parent company’s shareholder/sponsor is typically a subordinated creditor.  The shareholder (HoldCo) owns 100% of the share capital in the “Company” (PropCo) in an CRE investment transaction or the “Borrower” in a CRE development transaction, which is extended subordinated debt from the shareholder and subordinated creditors and a senior loan from the senior lenders.

The obligors provide a cross-guarantee of the senior loans.  Each obligor irrevocably and unconditionally jointly and severally guarantees to each finance party punctual performance by each obligor of all that obligor’s obligations under the facility finance documents and undertakes to pay upon demand any amount not paid by another obligor when due under or in connection with any facility finance document.

A subordinated creditor is any third-party that provides debt to the obligors – the “Company” (PropCo) in an CRE investment transaction or the “Borrower” in a CRE development transaction – and enters into a subordination agreement with the security agent on behalf of the senior lenders.  Security over any subordinated debts granted by the subordinated creditors is provided by means of a security agreement.

The security agent is appointed to hold the security under the facility agreements on behalf of the senior lenders and hedge counterparties (“Secured Parties”).  Security agreements over the assets, the shares of the obligors and any subordinated debt are entered into in favor of the security agent.  Also, the obligors’ rights in relation to hedging agreements are assigned to the security agent.