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Subordinate Financing in CMBS Transactions: Rating Agency, Investor and Servicing Concerns

Structuring A/B, Pari Passu, Mezzanine, Preferred Equity, and Intercreditor Arrangements for Securitization

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Thursday, February 21, 2019

Recorded event now available

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This CLE course will provide real estate finance counsel with guidance on how to structure A/B, pari passu, mezzanine, preferred equity and intercreditor arrangements for successful execution in a CMBS transaction. The panel will discuss how best to address the concerns of rating agencies and investors who evaluate loans with subordinate financing, and the issues presented in servicing loans with subordinate financing after securitization.


When considering how subordinate debt might affect a loan at securitization, the concerns of rating agencies, certificate purchasers (including B-piece investors) and other parties to the securitization transaction must be taken into account. They will assume that because a borrower has less equity in the property, the existence of subordinate debt increases the likelihood of default and the severity of loss after a default. Such loans will, therefore, have a higher default rating and adversely affect the pricing of the securities.

A/B, mezzanine and preferred equity components can impact a loan in different ways. Securitization parties will analyze loan and intercreditor documents to determine the subordinate lender’s ability to (a) transfer debt; (b) control the mortgaged property, the mortgage borrower, loan servicing and enforcement, and property management; and (c) receive payments and enforce its rights under the mortgage, among other issues. Counsel should be familiar with CMBS expectations and conventions concerning documenting each type of subordinate financing.

Senior/subordinate or pari passu structures present unique problems for loan servicers. In each case, there will be tension between the debt holders as to how much control each will have over the borrower’s decisions and the underlying collateral. Counsel must pay close attention to intercreditor provisions that address the rights and obligations of each lending party.

Listen as our authoritative panel discusses the treatment of A/B, pari passu, mezzanine and preferred equity in CMBS transactions, including the concerns of rating agencies, investors and servicers. The panel will also the discuss the CMBS intercreditor form and other standards which should be followed to achieve the best execution at securitization.



  1. CMBS distinguished from portfolio lending
  2. Securitization parties—rating agencies, investors, servicers
  3. Issues specific to mezzanine financing
  4. Issues specific to preferred equity
  5. A/B and pari passu loans
  6. Servicing and control rights
  7. Intercreditor agreements


The panel will review these and other critical issues:

  • How do rating agencies and investors (including B-piece buyers) evaluate subordinate financing?
  • Why might preferred equity be viewed more favorably at securitization than a mezzanine loan?
  • What are some key provisions for any intercreditor agreement, and how are they addressed in the accepted CMBS form?
  • How should servicing rights be addressed in A/B or pari passu loan structures?


Coury, Steven
Steven Coury

White and Williams

Mr. Coury concentrates on highly structured real estate finance and capital markets transactions, general real estate...  |  Read More

Dickey, Allen
Allen J. Dickey


Mr. Dickey practices in all aspects of real estate finance, securitization, acquisition, leasing and development. He...  |  Read More

O'Donnell, Siobhan
Siobhan O'Donnell Sachs

Ballard Spahr

Ms. O'Donnell is Team Leader of the firm’s CMBS Loan Origination Team who focuses her practice in the area of...  |  Read More

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