The Loan Market Association (LMA) has published a new recommended form of inter-creditor agreement for use in real estate financing deals.
The LMA said that the REF Contractual ICA was proposed in response to demand from members documenting smaller and mid-sized real estate finance deals who were increasingly seeing loans combining senior and mezzanine tranches ranked by way of contractual subordination only and with common security.
In 2014, the organisation published documentation which aimed to standardise inter-creditor documentation in structurally subordinated financings, as opposed to contractually subordinated deals. In structurally subordinated financings, debt is provided by senior and junior lenders to different entities within the borrower group, whereas in contractual subordination debt is provided to a single entity and the priority of payments is agreed by the senior and junior creditors.
The organisation admitted that a “one size fits all” document would be difficult to produce due to the variety of lending structures in such deals.
However, it added that: “Members felt that the basic formulation of a standard form template would be a step forward in achieving standardisation and, therefore, greater efficiency across the market by providing a common framework for the different stakeholders involved in these transactions.”
The REF Contractual ICA is intended for use in conjunction with the LMA’s Recommended Form of Facility Agreement for real estate finance multi-property investment transactions. The document uses the same ‘boilerplate’ as the LMA Recommended Form of Inter-creditor Agreement for the leveraged finance market.
“Enhancing liquidity in the real estate finance market is a key commitment for the LMA and the production of the REF Contractual ICA documentation is an important progression to support our members who are active in the market,” said LMA chief executive Clare Dawson.