What is this waterfall anyway? At the end of the day, does it really matter?
Did you know?
What is this waterfall anyway?
At the end of the day, does it really matter?
Priority of payments, otherwise known as the waterfall, is perhaps one of the most important features an investor should consider when picking an EB5 project. Simply put, the waterfall clearly defines the order of claims to the funds by various stakeholders as the funds become available for distribution.
In the most common case of an EB-5 financing, there is usually a senior loan that sits at the top of the priority of payments. The senior loan, which is sometimes referred to as the bank loan, is followed by a mezzanine bridge loan, if any. Finally, the project owner injects equity to the transaction which typically has the lowest level of priority in terms of distribution. When the EB-5 funds are raised, they could either be senior to the mezzanine debt, refinance the mezzanine debt, or in some cases are junior to the mezzanine debt.
It is essential to understand the priority of payments, because in a case of bankruptcy, the job creating entity (JCE) which typically borrows a loan extended by the newly created entity (NCE), will most likely not be able to pay back the loan. In that case, available collateral in the form of land and certain improvements might have to be liquidated. The liquidation proceeds are distributed to various stakeholders in accordance to the waterfall.
Therefore, when assessing the credit risk of the transaction, one needs to carefully study the waterfall in addition to the combined value created by the completed project as well as the level of equity and mezzanine debt. This amount constitutes the cushion that the investor would have before its funds would be in jeopardy in the case of a financial crunch. On the other hand, the level of senior debt and sometimes mezzanine debt that is above the EB5 in the waterfall gives the investor an idea of how much needs to be cashed in before the EB5 investors could see any distribution of capital.
For further information on waterfall or factors such as retrogression and reinvestment risk that affect the waterfall, please do not hesitate to email us at firstname.lastname@example.org or call us directly at + 1 917 355 9251.
Posted by americaeb5visa on June 8, 2018
Subscribe for News
Join Professionals on EB5Projects.com →
This website is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities. Any such offer or solicitation will be made only by means of an investment's confidential Offering Memorandum and in accordance with the terms of all applicable securities and other laws. This website does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. EB5Projects.com LLC and its affiliates expressly disclaim any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in the website, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.