Mezzanine Clauses
(Loan and Security Agreement)

Summary

These clauses are for inclusion in a loan and security agreement for mezzanine financing secured by an equity interest in an entity owning commercial real estate. These clauses include practical guidance and drafting notes. Mezzanine financing is a hybrid form of financing between debt and equity. Typically, mezzanine debt is subordinate in priority to payment of senior debt but ranks higher in priority than equity. There are many variations on the structure of mezzanine financing. Some mezzanine structures include convertible or preferred securities. Other mezzanine financing involves pledging the equity interest in an entity owning commercial real estate to secure the subordinated loan. The following diagram depicts the structure of a commercial real estate financing that includes a mezzanine loan: The mezzanine loan and security agreement, while similar to the loan agreement for the mortgage loan, has certain provisions specifically addressing the structure and terms of the mezzanine loan. These clauses highlight a selection of the provisions of a loan and security agreement that typically would be customized for a mezzanine loan involving commercial real estate. These clauses are intended as a general drafting aid and will require modification according to the particular mezzanine loan structure and the intentions of the parties. For a full listing of key content covering commercial real estate mezzanine financing, see Mezzanine Financing (Commercial Real Estate) Resource Kit. For a full listing of key content regarding general mezzanine financing, see Mezzanine Finance (Non-CRE) Resource Kit. For guidance on mezzanine financing structure, see Mezzanine Debt Structure and Mezzanine Lending. For a template of a pledge and security agreement for a mezzanine financing, see Pledge and Security Agreement (Mezzanine Financing) (NY) or Pledge and Security Agreement (Mezzanine Financing) (DE). For additional mezzanine clauses, see Financial Reporting Covenant (Mezzanine Loan Agreement) (Commercial Real Estate), Call Protection and Optional Prepayment Clause (Mezzanine Financing), and Nonrecourse Carveout Clauses (Acquisition Loan Agreement, Mezzanine Financing) (Pro-Lender).