Intercreditor Agreements and Their Role in EB-5 Projects

How intercreditor agreements can help or hurt EB-5 investors and lenders.

What Is an EB-5 Intercreditor Agreement?

Intercreditor agreements take place between two or more creditors, generally a senior and a junior lender, and ensure that certain protections are agreed upon for the parties involved. If intercreditor agreements were not in place, a legal mess between the entities would likely ensue.

There are different kinds of loans available to EB-5 projects, and whichever route they choose will influence the nature of the intercreditor agreement, which normally works in favor of the senior lender. It is important for junior lenders and borrowers to examine the terms and agreements carefully.

In this article, we go over loan types, the structure of an intercreditor agreement, and the pros and cons of securing one for an EB-5 investment.

Types of EB-5 Loans

The EB-5 loan model is made up of a special purpose vehicle (SPV) designed to accept EB-5 investors and distribute loans to the project being invested in. This loan partnership involves the risk of financial loss for both sides, so it is critical that both have adequate resources or options in case of project failure and that the loan terms are laid out clearly in the offering documents.

The most common loans available for an EB-5 borrower are senior, subordinate, junior, and mezzanine.

Senior Loans

Senior loans are secured with collateral such as real estate and hold priority status over subordinate loans. This is the primary lienholder, and it receives senior debt payments.

Subordinate Loans

These subordinate loans have secondary rights to the senior lien-holder, and include both junior and mezzanine loans. It is important for investors to be aware of all the terms of a subordination agreement.


A junior loan is a subordinate loan secured with collateral, similar to a senior loan.


Mezzanine loans are secured through a pledge of company equity or assets through the borrower.

What to Look For In a Loan

The EB-5 borrower should carefully read the offering documents, especially if the SPV is a regional center or a company with multiple affiliates involved in the loan process. These are some of the most important questions to ask.

  • What is the actual loan amount? Is there an accordion option to potentially increase the amount?
  • What are the minimums, maximums, and conditions of change?
  • When does interest begin to accrue, and when do interest fees payments start? Is the interest simple or compound?
  • What are the repayment terms?
  • What kind of fees are there, and are they reasonable? Who are the fees going to?
  • Do loan conditions prevent the dispersal of funds in any way?
  • What are the representations and warranties?
  • Are there affirmative or negative covenants? Why are they there?
  • Is the loan backed by collateral? What is the collateral, and how much is it worth?
  • Does the lender have first or second priority?
  • Is there enough equity to support the senior debt and junior debt owed in case of foreclosure? Such a case should be avoided if the EB-5 project has a solid capital structure.
  • What happens if the borrower defaults? Does the interest rate increase, or is the loan due immediately?
  • Is there a loan guarantor? Do they have the financial means to carry out their obligations if necessary?
  • Are the involved parties affiliated? Are they trustworthy?

EB-5 Intercreditor Agreements

An EB-5 inter creditor agreement sets in place specific terms between a senior and junior lender that detail the nature of their relationship to each other and the EB-5 investor who is taking out the loan. In some circumstances, intercreditor agreements can also take place between two senior lenders. Such an agreement can have crucial ramifications for EB-5 investors.

It is important for the subordinate lienholder to exercise any rights promptly to avoid the risk of significant financial loss in the event of monetary defaults or bankruptcy and prevent any immigration barriers for the borrower. If the junior lender fails, EB-5 investors may not qualify for U.S. visas.

Potential Pros and Cons

These are some of the possible benefits and drawbacks of an intercreditor agreement for a subordinate lienholder to keep in mind. Not all of these apply; each intercreditor agreement is different, so it is important to know the full extent of conditions.

Pros of an Intercreditor Agreement

The junior lender could receive:

  • Notice of default.
  • Opportunity to cure a default and take over the project with qualified leadership.
  • Ability to exercise a mezzanine pledge.
  • Reduction of loan cost due to the senior lender’s access to administrative infrastructure, keeping them updated on project development and loan draws without needing extra resources.
Cons of an Intercreditor Agreement

The subordinate lienholder might lose:

  • The right to collect principal payments or interest.
  • The ability to approve the course of action in case of bankruptcy.
  • The right to foreclose on collateral.
  • The right to pursue remedies against common guarantors of the senior lender.
  • The ability to modify the subordinate loan agreement.

Who Needs an Intercreditor Agreement?

The purpose of the inter creditor agreement is to safeguard the interests of everyone involved and ensure that the lender can repay the EB-5 investor if the project experiences financial difficulties.

In reality, most intercreditor agreements strongly favor the senior lenders, who tend to retain rights on collateral and default action. Because of this, an intercreditor agreement may not always be the best choice for a junior lender, unless they or the borrower has sufficient leverage with which to work for the best terms.

An example of such leverage for an EB-5 lender is when they have the financial means to complete an EB-5 project independently of the senior lender, or when their financial contribution through the loan is essential for the success of the project.

If the borrower has a good history with their senior lender, or possesses the ability to switch to another freely, they will also have valuable leverage to obtain a more favorable agreement.

Key Points for EB-5 Intercreditor Negotiation

Without sufficient leverage, it may be wisest to proceed without an intercreditor agreement if not required by the senior lender; such an agreement may increase investors’ risk. When examining the offering memorandum, the junior lender and borrower should examine several factors to determine whether they should proceed.

  • The junior lender should have:
  • The ability to foreclose on the subordinate collateral.
  • The ability to put a temporary standstill on the senior lienholder’s remedy of foreclosure.
  • The right to receive payment of the debt.
  • The faculty to step in and complete a defaulted project if necessary.
  • The right to purchase the senior loan in case of default.
  • Sufficient financial capital to take over the project if the borrower defaults, or a partnership with an entity who does.
  • Experience completing projects similar to the one at hand, or access to the resources to do so.

These conditions will not always be entirely met in the offering memorandum, but the more that are, the more benefit it will be to both the borrower and junior lender.

The Value of an EB-5 Intercreditor Agreement

Intercreditor agreements can be valuable for EB-5 investors and lenders by laying out exact terms of the EB-5 loan and retaining specific rights of the junior lender. Not all intercreditor agreements are equal, and many can be harmful to the rights of the junior lender, so investors should read the offering documents carefully. The relationship of the senior lender in relation to the junior lenders is of prime importance.

EB5AN is a leading EB-5 organization in the U.S. with 10+ EB-5 regional centers in operation. To learn more about EB5 investment and how an intercreditor agreement works, book a call with EB5AN today.