CREFC forms group to help with intercreditor problems

Working party of 10-12 to be led by Christian Lambie and Charles Roberts

A new working group to tackle problems with intercreditor agreements has been launched by the Commercial Real Estate Finance Council Europe.

It will be led by Christian Lambie, a partner in the securitisation group at Allen & Overy, and Paul Hastings finance partner Charles Roberts.

The other 10-12 participants are yet to be finalised, although a meeting among the members is scheduled to take place early next month and the group will draw upon advice from the CREFC’s lender and CMBS 2.0 committees – the latter of which is focusing on general securitisation documents as well as how servicers and other parties interact.

Intercreditor principals do not necessarily come under the CMBS 2.0 umbrella because “the requirements and details involved in that fall outside the CMBS structure”, said Jaymon Jones, CREFC Europe’s director, strategic initiatives, who added that the CREFC board “felt it needed more of a lenderbased review”.

With five or six different intercreditors within some loans, the intercreditor group will work on coming up with a “base case within the senior, mezzanine, and asset-backed world which would make it easier to ascertain how the model should work”, explained Lambie.

It is still in the early planning stages, but by year-end aims to put together a document on best practice that will outline factors to take into account when drafting intercreditor agreements and may include model language for documentation.

The growing number of complex debt restructurings has thrown up concerns that junior lenders have too many rights, which some believe should be scaled back.

“We still have junior lenders negotiating substantial payoffs, millions, in return for their consent. Under a lot of these intercreditors they are entitled and if you don’t pay them off the only alternative is enforcement,” said one adviser. This is one area that will not fall under the remit of the intercreditor group, as it is up to the parties involved to negotiate.