Money and structure
Subordination and intercreditor agreement
Also called intercreditor, intercreditor agreement, subordination agreement.
A subordination agreement ranks one creditor's claim behind another's, and an intercreditor agreement sets the order of repayment, control and enforcement rights among two or more lenders to the same project. Neither is an EB-5 instrument. Both turn up in EB-5 because the new commercial enterprise's loan is usually the junior debt in the capital stack.
What it decides
In a loan-model regional center project, the new commercial enterprise lends the pooled EB-5 capital to the job-creating entity behind a senior construction lender, and these two contracts decide what that ranking means when money runs short: who is repaid first, who may call a default, and how long the junior lender must stand still. Neither term appears anywhere in 8 U.S.C. 1153 or 8 CFR 204.6. The hook is disclosure. Under 8 U.S.C. 1153(b)(5)(F)(i)(IV), a regional center filing Form I-956F, "Application for Approval of an Investment in a Commercial Enterprise", must submit the investment and offering documents for the offering, and those documents must reference "all material investment risks associated with the new commercial enterprise and the job-creating entity" under item (aa). Subordination is such a risk. Part 6, Item 3 of the form asks the center to name the exhibit and page where it is disclosed. Being subordinated does not disqualify the capital. The exclusions from the statutory definition of "capital" at 8 U.S.C. 1153(b)(5)(D)(ii)(III) are all framed as arrangements between the alien investor and the new commercial enterprise: a note, bond or other debt arrangement between the two, a guaranteed rate of return, or a contractual right to repayment such as a mandatory redemption or a put option. A subordination or intercreditor agreement sits a level below, between the new commercial enterprise or the job-creating entity and a third-party lender, and gives the investor nothing. It cannot trigger those exclusions. 8 CFR 204.6(j)(2), which predates the 2022 Reform and Integrity Act, points the same way, asking for evidence that the investor "has placed the required amount of capital at risk". What can bite is change. Approval of an I-956F binds USCIS in later petitions unless, among other grounds, "there has been a material change that affects eligibility" under 8 U.S.C. 1153(b)(5)(F)(ii)(III). Rewriting the intercreditor terms after approval, say extending a standstill so the EB-5 loan is repaid far later than the business plan contemplated, is the kind of change that gets looked at. Standing last in line is a risk to the money, not usually to the classification.
Where this is explained properly
Pages here that go into subordination and intercreditor agreement rather than mentioning it.
Related terms
- Completion guarantyA completion guaranty is a promise by the project sponsor or a creditworthy affiliate to fund cost overruns and finish construction, made to the lender or the project entity rather than to the individual EB-5 investor. It guarantees the building, not the investor's capital and not the jobs.
- Subscription agreementA subscription agreement is the contract by which an investor buys an interest in the new commercial enterprise, carrying the price, the investor's representations, the closing conditions and, where the offering uses one, the terms on which money leaves escrow.
- Exit strategyExit strategy is the industry name for how and when invested capital is meant to return to the investor, whether through repayment of the project loan, a sale, a refinancing or a buyback. USCIS does not define the term, and immigration law limits it: capital the investor has a contractual right to get back does not count as capital at all.
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