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Definitions
Capitalized defined terms are crucial in loan agreements
because they are repeated throughout the loan agreement as well
as other related ancillary loan documents. The first section of the
loan agreement will typically define these capitalized terms used
in the loan agreement.
Borrowing Terms and Procedures
The second section of the loan agreement will typically provide
detailed procedures for borrowing, including the following:
•
the amount of the loan;
•
the time period for borrowing and procedure for loan
advances (e.g., a multi-draw with a fixed availability period
or based on construction draws);
•
the payments of interest and principal (e.g., monthly,
quarterly, or annually; interest only for certain period; or
interest and principal installments);
•
the repayment of principal and accrued and unpaid interest
at final maturity;
•
the availability of extension periods exercisable by EB-5
Borrower for an increased interest rate and/or an extension
fee; and
•
computation of interest rate and other fees (e.g.,
origination fee).
To structure the funding or borrowing mechanics for the EB-5
Loan transactions properly, the parties must understand precisely
how and when EB-5 funds will be released from the escrow or
trust account and time the EB-5 Loan disbursements under the
loan agreement accordingly. In most cases, EB-5 Lender will not
have the funds to disburse the entire amount of the EB-5 Loan
committed under the loan agreement at the initial closing. As
EB-5 Lender raises funds from EB-5 investors over time, EB-5
Lender and EB-5 Borrower will need to maintain close communication and schedule the EB-5 Loan disbursements based on
the EB-5 investments then held in the escrow or trust account
and applicable release triggers.
For an EB-5 Lender, it will be important to negotiate a
binding commitment from EB-5 Borrower to draw down on
the EB-5 Loan so long as EB-5 Lender raises certain minimum
amount within a reasonable time negotiated between the
parties (e.g., 50 percent of the EB-5 Loan commitment within
12 to 24 months of the loan agreement date). This is unique
to EB-5 loan transactions in that EB-5 Lender has legitimate
reasons to worry about EB-5 Borrower refusing to draw down
on the EB-5 Loan after EB-5 Lender has incurred substantial
costs in raising EB-5 funds from foreign investors and the
investors have relied on EB-5 Borrower’s commitment to utilizing the full principal amount by filing their I-526 Petition with
the U.S. Citizenship and Immigration Services (the “USCIS”)
in advance of the full drawdown.
Typically, the maturity date for the EB-5 Loan is scheduled to
be the later of (a) the fifth anniversary date of the funding date
for each EB-5 Loan advance under the loan agreement and (b)
the date that is a few business days after the Form I-829 Petitions
of all EB-5 investors are either (i) adjudicated by the USCIS or
(ii) voluntarily or involuntarily abandoned or withdrawn.
Conditions Precedent for Closing and/or Funding
This section specifies the conditions that EB-5 Borrower must
meet before EB-5 Lender will lend money under the loan agreement and is often divided into two categories: initial conditions
to be satisfied before the first loan advance and conditions that
apply to all advances (the first and any subsequent advances).
Examples of conditions precedent relevant to the EB-5 Loan
transactions include the following:
•
production of various documents such as corporate
authorization related documents (e.g., secretarial certificates,
authorizing resolutions, good standing certificates, etc.) and
other ancillary loan documents, including guaranties, pledge
agreements, and intercreditor agreements, as applicable;
•
proof of EB-5 Borrower’s receipt of other funds in the
project’s capital stack before the EB-5 Loan is funded (e.g.,
proof of equity, tax credits, senior loan, etc.);
•
receipt and satisfactory review of customary due diligence
documents including an appraisal, title and survey reports,
lien searches and environmental reports with respect to the
project; and
•
to the extent the EB-5 Loan is secured, evidence that the
security interest in all collateral is properly perfected (e.g.,
through filing of applicable UCC financing statements for
certain personal property and recording of mortgage, deed
to secure debt, or deed of trust for certain real property).
It is crucial for EB-5 Lender to have a designated team or
personnel to administer the EB-5 Loan and properly verify
conditions precedent before funding each disbursement under
the loan agreement.
Representations and Warranties
One of the many ways EB-5 Lenders can minimize their risks
is through representations and warranties from EB-5 Borrowers.
The representations and warranties section of the loan agreement
allows EB-5 Lenders to: (a) gather material information about
EB-5 Borrower and its operation and assets; (b) to garner the
rights to monitor the business of EB-5 Borrower on an ongoing
basis properly; and (c) allocate risks to hold EB-5 Borrower liable
if any representation or warranty is untrue (whether or not EB-5
Borrower is at fault). While representations and warranties are
fairly standard, it is important for EB-5 Borrowers to review
them carefully to ensure that each provision contains suitable
carve-outs and materiality thresholds wherever appropriate.
Covenants
Covenants are particularly relevant and important for
long-term credit arrangements such as an EB-5 Loan, which
will typically have a term longer than five years based on the
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EB5 INVESTORS MAGAZINE