Continued from page 19 possess the asset and have no obligation to pay junior creditors, if there are any. It is important to understand the priority of the loan that the SPV makes. Reviewing intercreditor agreements or otherwise understanding the intercreditor relationship and priority of payments and security will help an investor understand the risk they are taking in a deal. Take a careful look at the amount of equity in a deal that comes behind the lending obligations. If there is plenty of collateral value in an asset or equity in a structure to support all of the debt, then even the junior debt may be reasonably safe.
Default & Remedies: Ideally, there are clear provisions on what constitutes a default and what remedies are available to the lender in the event of a default. Some loans may have default interest provisions that escalate the rate of interest charged on the loan. Most loans will allow for some sort of acceleration of the loan such that the entire loan is due immediately. Note, however, that if a loan is accelerated and the borrower is left without funds to carry on its business and create sufficient jobs prior to final approval of all EB-5 visa applicants, it would likely jeopardize the immigration prospects of the EB-5 investors.
Guaranty: Is there a guarantor to the loan who will carry out the borrower’ s payment obligations if the borrower defaults? Who is the guarantor? What exactly are they guaranteeing, and how financially sound is the guarantor? Whether a guaranty is meaningful in a loan requires a similar analysis as required to determine whether collateral is meaningful in a loan. Many EB-5
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Boilerplate: Boilerplate language is in agreements not to waste time or paper, but because it has legal significance. For example, if the boilerplate allows for assignment of loans, that may create an EB-5 issue. As with the rest of the loan documentation, it is best to read through the boilerplate provisions. If there is an assignment, confirm that the new party is obligated to maintain the EB-5 investment and restrictions for as long as needed to achieve the EB-5 purposes.
Affiliated Parties: Note that no matter how good the agreement, if all the parties are affiliated and there is no third party control mechanism, they can always waive or amend the agreements liberally. That means that even if there is a robust agreement in place, the parties could change it later to something less protective. There are strategies to better control situations where the parties are all affiliates, but case-by-case analysis is required. Remember also, that just because the parties are affiliated does not necessarily mean that a deal is bad. With trusted and sophisticated parties, it may actually be convenient for them to be able to adapt swiftly to situations that may arise.
This article is not meant to be comprehensive; entire treatises are written about loan agreements or even specific concepts within loan agreements. Ideally, this article gives the reader an insight into some of the provisions commonly found in loan agreements and how they might affect an investment analysis as it pertains to EB-5. The general logic is that a more comprehensive loan with the full range of bells and whistles may make for a safer and better loan; however, it is important to understand that a loan having all of the elements that would seem to make it a stronger and safer loan from a legal perspective does not unilaterally mean that it is actually the stronger or safer loan. Some of the safest loans in life can come from simple agreements or even oral agreements with trusted, honorable folks.
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Jor Law practices corporate and business transactional law and is a founding shareholder of Homeier & Law, P. C. Jor received his J. D. from Columbia University and his B. A. from UC Berkeley. Jor is a member of the California and New York state bars. For three consecutive years, in 2009, 2010 and 2011, Jor was recognized by Los Angeles magazine as one of“ Southern California’ s Super Lawyers – Rising Stars,” placing him among the top 2.5 percent of the best up-and-coming attorneys in Southern California who are 40 years old or younger, or who have been practicing for 10 years or less.
Angelique Brunner is the President of EB5 Capital and owns or operates regional centers in Washington, D. C., and California. Angelique sources and structures projects for her firm and will soon launch her 8th project. She has maintained a 100 % approval rate for her investors’ I-526 and I-829 petitions. She brings over 15 years experience in finance to the industry. Additionally, Angelique has served on the Best Practices Committee and Public Policy Committee of IIUSA.
20 EB5 Investors Magazine