Money and structure
Senior debt
Also called senior loan, senior lender, first mortgage.
Senior debt is the borrowing that ranks first in a project's capital stack, normally secured by a first lien on the project assets, and it is paid ahead of every junior claim, an EB-5 loan included, out of project cash flow and out of the collateral if the borrower defaults.
What it decides
No provision of the INA, and nothing in the EB-5 regulation at 8 CFR 204.6, defines senior debt; it names rank in a private financing, not an immigration category. A senior lender's priority does not by itself disturb EB-5 eligibility, because the statutory bar on debt arrangements runs between the alien investor and the new commercial enterprise, not between that enterprise and a bank. What senior debt governs is order of recovery. Priority does not mean the junior loan goes unpaid until the bank is retired: subordination and intercreditor terms usually let junior debt take its scheduled interest while the senior loan performs, and block those payments only on default, when the senior claim reaches the collateral first. The investment and offering documents filed with the project application must reference, as appropriate, all material investment risks of the new commercial enterprise and the job-creating entity, so the senior balance, its lien position, its maturity and its default terms belong there. Read them before subscribing, and establish whether the EB-5 money sits as junior debt or as equity behind the whole of it, because equity ranks last.
Where this is explained properly
Pages here that go into senior debt rather than mentioning it.
Related terms
- Capital stackThe capital stack is the ranking of a project's funding sources by priority of claim, from senior debt, which is paid first and absorbs losses last, down through mezzanine debt and preferred equity to common equity, which is paid last and absorbs the first losses. It is a finance term rather than an EB-5 one: nothing in the EB-5 statute or regulations fixes where a project's EB-5 money must rank.
- Mezzanine debtMezzanine debt is a loan ranking below the senior lender and above every equity holder, and in a regional center loan model it is a common position for the loan the new commercial enterprise makes to the job creating entity. It describes that loan, not the investor's own stake, which has to be equity in the new commercial enterprise rather than debt.
- Preferred equityPreferred equity is an ownership interest that ranks ahead of common equity for distributions and for the return of its capital, and behind the debt of the entity that issued it. In EB-5 the phrase most often describes the form the new commercial enterprise's investment in the job-creating entity takes.
- Loan modelThe loan model is the regional center structure in which the new commercial enterprise lends the pooled investor capital to a separate job creating entity, most often a company the project developer controls, instead of taking an ownership stake in it.
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