Continued from page 28
which may include a loan agreement, promissory note,
security document (covering personal and/or real property), construction draw agreement, pledge agreement,
guaranty, intercreditor agreement, subordination agreement, and other ancillary loan documents as appropriate
for a particular EB-5 project. The loan documents will
reflect a pre-negotiated interest rate, maturity date, one or
more extension periods of the maturity date, mandatory
prepayment in the event of EB-5 Borrower default or
I-526 denials, prohibition of voluntary prepayment except
in limited cases, financial and other covenants, collateral
arrangement, and other material terms of the EB-5 Loan.
To secure the EB-5 Loan, EB-5 Borrower may grant EB-5
Lender a junior priority security interest in certain of its
assets (personal and/or real property). This security interest
will be subject to an intercreditor agreement and/or
subordination agreement with one or more senior lenders
of JCE. In addition, JCE’s principal(s) and affiliate(s)
may also provide guarantees (i.e., completion guaranty,
environmental indemnity guaranty, I-526 repayment
guaranty, etc.).
E. JCE often obtains several short-term financings (equity
or debt) from unrelated third parties to meet the required
timeline for development of its EB-5 project before
EB-5 Loan disbursements commence. The EB-5 Loan
disbursements are subject to the offering, and the funds
used to make the EB-5 Loan disbursements will be held
in the escrow or trust account until released from escrow
or trust and disbursed in accordance with the applicable
release trigger conditions contained in the escrow or trust
agreement. JCE may use some or all of the EB-5 Loan to
repay some or all of the then outstanding amounts under
these short-term financings.
F. JCE typically anticipates having one or more senior
lenders who are expected to extend construction and
other credit facilities. The EB-5 Loan will be subordinated
in right of payment to senior debt of JCE pursuant to the
terms of a subordination and intercreditor agreement,
and EB-5 Lender may not be permitted to enforce any
rights it has under the EB-5 Loan during a period of
time referred to as a “standstill period,” which can range
between 90 days to 270 days. The senior loans may
demand additional conditions that may further limit
EB-5 Lender’s rights.
G. Using the sources of funding described above, JCE expects
to fund the total project cost of its EB-5 project. JCE
typically expects to repay the EB-5 Loan at maturity with
the proceeds of a long-term financing, revenue from its
operations, or funds from other sources, which may include
the sale of the project.
H. Typically, NCE is managed by its EB-5 regional center
sponsor as its sole manager. The EB-5 regional center, as
manager, will also act as EB-5 Agent, performing customary
management services and administrative and operational
30
services for the EB-5 Loan. The EB-5 regional center
will often engage one or more funding agents or strategic
partners to identify and secure potential EB-5 investors.
Ideally, NCE and the EB-5 regional center will also engage a
FINRA registered broker-dealer to act as a financial advisor,
who will analyze the offering, conduct due diligence, offer
strategic advice, and assist in negotiations and closing
mechanics with respect to the offering in compliance with
applicable securities laws.
Structure and Terms of an EB-5 Loan Agreement
A loan agreement is the primary contract between the
borrower and the lender in a loan transaction that regulates
the mutual promises made by each party. An EB-5 Loan can
be structured as senior or junior/subordinated depending on
the relative portion of the EB-5 Loan compared to the other
sources of funding in the overall project financing and can be
either secured or unsecured and have one or more guaranties or
no guarantee. While each EB-5 project will have its own set of
unique issues and complexities arising from the nature of the
EB-5 Loan relative to other financings, the bargaining position
of EB-5 Borrower, and numerous other factors, almost all loan
agreements have similar key provisions and structures. The summary below provides an overview of these standard provisions in
the context of EB-5 financing transactions.
Overview of Competing Perspectives: Lender v. Borrower
For the EB-5 Lender, some of the most important considerations include whether JCE (EB-5 Borrower, or its permitted
assigns and successors) will (a) create a sufficient number of
qualifying jobs to comply with the EB-5 requirements to support
the amount of the EB-5 Loan, (b) have sufficient funds from its
operation to repay the principal sum advanced, (c) have sufficient
funds from its operation to make interest payments promptly
when due during the term, and (d) provide necessary financial
and corporate documents for EB-5 investors as required by the
USCIS to secure approval at the I-829 petition stage.
Like any other borrower, EB-5 Borrower’s main concern will
be whether the loan agreement is flexible, i.e., will it comply
with the terms of the parties’ initial agreement without surprises,
will it be practical and refrain from restricting EB-5 Borrower’s
activities (e.g., through covenants and events of default) and
otherwise does not interfere with EB-5 Borrower’s ability to run
its business. In that regard, EB-5 Borrower will also need to make
sure the terms of the EB-5 Loan do not conflict with the senior
loans or equity financing cont emplated for the project. EB-5
Borrower will often attempt to, among other things:
•
introduce reasonableness and materiality thresholds where
applicable to temper its obligations in the agreement; and
•
increase grace periods and introduce mitigation clauses
before events of default are triggered to allow maximum
flexibility.
EB5 INVESTORS MAGAZINE
Continued to page 32