A/B Tranching of Commercial Real Estate â Secured Loans: An ...

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The Servicing Standard Override • Based on the securitization approach, modifications affecting fundamental economic terms can be approved by the controlling holder. Literally, this authority would permit the controlling holder to consent to a workout that results in the cancellation of principal or other material changes to the loan terms. • If left unchecked, and if the A holder is the controlling holder, the securitization approach would empower it to agree by the ―stroke of a pen‖ to authorize the special servicer to cancel the principal due to the B holder or to make other changes in terms that would adversely affect the B holder, without any requirement for consent from the B holder. There is no protective feature for ―Unanimous Decisions.‖ 33
The Servicing Standard Override • The special servicer is obligated to service the loan based on Accepted Servicing Practices. Thus, if the direction from the controlling holder is not consistent with Accepted Servicing Practices, the servicer should decline to proceed with the direction from the controlling holder, and may proceed with the proposed course of action that the servicer had previously recommended. This provision is commonly known as the ―servicing standard override.‖ 34
Page 1 and 2: ©2012 Morrison & Foerster LLP | Al
Page 3 and 4: A/B Tranching of Commercial Real Es
Page 9 and 10: “Pari Passu” vs. “Sequential
Page 11 and 12: Identity of the B Participant/Trans
Page 13 and 14: Identity of the B Participant/Trans
Page 15 and 16: Servicing Standard • In transacti
Page 17 and 18: Approval and Consultation Rights of
Page 25 and 26: What is a “Control Appraisal Even
Page 33: What is a “Control Appraisal Even
Page 37 and 38: B Holder’s Cure Rights • The B
Page 39 and 40: B Holder’s Purchase Option • Ma
Page 41 and 42: B Holder’s Purchase Option • Th
Page 43 and 44: Rights to Replace the Agent/Service
Page 45: Rights to Replace the Agent/Service

A/B Tranching of Commercial Real Estate â Secured Loans: An ...

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A/B Tranching of Commercial Real Estate â Secured Loans: An ...