Finance
Cox, Castle & Nicholson LLP is proud to represent a variety of traditional and nontraditional lenders, including banks, insurance companies, pension funds, finance companies, mortgage bankers, private investment funds, and other entities, as well as developers and other borrowers, in the financing of real property, businesses, receivables, and other assets. Our finance capabilities are all-encompassing and include the initial structuring and closing of finance transactions, loan administration, workouts, and loan restructures.
The breadth of our financing engagements is not limited by property type or asset class. We have been involved in the financing of residential, resort, hospitality, industrial, commercial, agricultural, and retail projects and shopping centers, office buildings, hotels, apartment buildings, industrial parks, congregate care facilities, condominiums, planned unit developments, and vacation ownership and mixed-use projects. We also assist clients with asset-based financing involving collateral such as stock, accounts receivable, inventory, equipment, crops, general intangibles, and entity ownership interests. Often, financing transactions involve both real and personal property.
We efficiently handle both standard and exceedingly complex financing transactions, including acquisition, development, construction, bridge and permanent loan transactions, mezzanine loans, multistate/multiparcel cross-collateral transactions, revolving lines of credit, interest rate swaps, caps and collars, loans secured by ground leases, loans secured by fractional ownership interest receivables, trade finance, loans secured by crops and other farm products, and the issuance of letters of credit. Often there are multiple lenders involved in a financing transaction, and, as a result, we draft and negotiate a variety of intercreditor, participation, or loan syndication agreements. We are particularly knowledgeable concerning the California antideficiency and “one action” statutes applicable to real estate secured loans and the special considerations applicable to loans secured by a combination of real and personal property, as well as the unique issues that arise under revised Article 9 of the Uniform Commercial Code. Our attorneys have extensive experience in dealing with issues related to real and personal property collateral that are fundamental to a lender’s underwriting or a developer’s ability to qualify for a loan. This often involves the review and negotiation of contracts such as construction contracts, architect agreements, and leases; review of title matters and the negotiation of the form of title insurance policy; review of casualty, liability, and other insurance policies; and conducting land use and environmental due diligence.
We utilize an interdisciplinary approach that is efficient and client-friendly. The depth and breadth of our real estate capabilities enable us to draw on the special expertise of other Firm attorneys in areas such as litigation, bankruptcy, land use and zoning, environmental matters, insurance coverage, common interest subdivisions, and construction law to deliver comprehensive legal services to our clients.
Acquisition, Development, and Construction Loans. Financing raw land, entitled land, or improved property requiring redevelopment and rehabilitation requires a broad range of legal expertise. A master developer may require a loan to develop and entitle raw land to enable the developer to sell portions of the property to merchant builders, which may involve complex revolving and partial release features. We carefully craft construction loans to ensure that sufficient funds are available from the loan and equity sources to complete the project and protect the lender’s interest and also to provide sufficient flexibility to enable the borrower to successfully complete the project.
Conduit Loans. This Wall Street creation has increased the capital available for real estate transactions but involves many unique requirements. Designed to be placed into a securitized pool and backing bond investments that are rated and sold to investors, a conduit loan is not a typical loan. These loans are designed so that they cannot be repaid until the investors have received a long-term stream of income. We have vast experience dealing with the special issues involved in conduit loans for both lender and developer clients, particularly those resulting from the requirements of the various rating agencies. Depending on the size of the particular loan, these agencies may require a special purpose entity borrower, yield maintenance or defeasance provisions, cash management and lock box requirements, and special bankruptcy nonsubstantive consolidation legal opinions. In addition, on larger or more complex loans, we assist in drafting securitization disclosure documentation.
Participating and Convertible Loans. Many loans are structured as quasi-joint ventures in their economic result, where the lender desires to receive a share of property operating net cash flow and appreciation in value in addition to a base interest rate. Some of these transactions include provisions for guarantied yields, internal and real rates of return, and conversion into joint venture or other forms of joint ownership. We analyze participating and convertible financing transactions to identify and minimize legal risks. We are familiar with imputed partnership, clogging the equity of redemption, usury, and other issues unique to participating and convertible loans, and have extensive experience structuring transactions to minimize such risks. A delicate balance must be structured between the investor’s desire for control and the desire to maintain the investor’s status as a “lender” rather than an “owner.”
Mezzanine and Other High-Yield Loans. Formerly known as subordinate debt, these loans have evolved into complex instruments that accommodate the needs and interests of the property owner, principal investors in the property owner, senior lenders, rating agencies, and loan participants. Mezzanine loans are designed to fill the gap between a construction or permanent loan and the owner’s equity investment, resulting in high-yield returns (often in the form of the participation features found in participating loans). As a result of the high leverage involved in these loans, the cash management requirements found in conduit loans are present here as well, often with a much higher degree of management. Mezzanine loans are structured in a variety of ways. These include the traditional junior liens on the property, subordinate loan participation interests, “B Notes” secured by the same first mortgage securing an “A Note,” or a pledge of direct or indirect ownership interests in the property owner. In each structure, the mezzanine lender requires protection from the loan enforcement rights of the senior property lender through the negotiation of an intercreditor agreement. Also, many mezzanine lenders are required to comply with ERISA and/or Real Estate Operating Company rules. We are on the cutting edge in the development of these creative loan structures.
International Finance Work. We have considerable experience working with both lenders and borrowers in the area of international finance. By working with other firm attorneys who specialize in emerging markets transactions, tax, and foreign investment, we provide a bridge between institutional finance requirements and foreign debt and security structures. Our services include reformulating security packages, assessing the availability and viability of title insurance, understanding foreign land registries and foreign rules governing ownership and enforcement of loans and security interests, and working with local counsel.
Vacation Ownership Receivables Financing. Our attorneys have represented vacation ownership developers since the creation of the vacation ownership product (formerly known as “timeshare”) through its maturity into a marketplace with a wide variety of offerings and increasingly complex ownership regimes. We negotiate the financing tools required to develop successful vacation ownership projects and have been engaged to represent many financial institutions in loan transactions with vacation ownership developers of both domestic and international (e.g., Mexico, Cayman Islands, Bahamas) projects. Our unique capabilities enable us to provide value-added services to lenders in connection with combined construction and receivables financings, inventory loans, and note purchase facilities. We also assist vacation ownership developers in structuring the vacation ownership legal regime and exchange programs in anticipation of the requirements of institutional lenders.
Commercial Finance. Many business loan transactions involve personal property as collateral. Revisions to Article 9 of the Uniform Commercial Code have added to the complexity of these asset-based loans. We represent institutions in connection with trade finance facilities, which can include a combination of unsecured facilities, accounts receivable and inventory loans, equipment financing, entity ownership pledges, and letters of credit.
Credit Enhancement. Tax exempt and taxable bonds issued in connection with real estate development transactions are often collateralized by letters of credit or other credit enhancement devices. The institutions issuing the credit facility enter into a reimbursement agreement with the developer whose obligations are secured by a collateral package typical for a real property secured loan. Our experience in public finance and our understanding of the requirements of the bond market uniquely qualify us to efficiently represent developers and credit enhancement providers in the structuring of these transactions.
Workouts. As the economy and markets fluctuate, a loan that looked good when made can suddenly become a problem. We have considerable experience in representing borrowers and lenders in developing and implementing workout programs that address the interests of all parties to a transaction. Workout arrangements can involve many variables, including maturity extensions, interest accruals, bifurcation of the loan into a performing piece and a nonperforming piece, additional capital requirements, and a myriad of other features. We are experienced in drafting and negotiating the workout documentation and title insurance coverage and close workout transactions.
