Tranche 1
4/16
Tranche 2
5/16
Tranche 3
7/16
CMB MAGAZINE cmba-achc.ca winter 2016 | 37
unitranchemortgages
$10 Million
WILL CANADIAN LENDERS soon be
including unitranche mortgages in their
selection of products? Are you, as a broker,
equipped? Do you understand unitranche
mortgages – what they are and how they
are structured?
Unitranche mortgages are common in
Europe and the United States; their use is not
yet widespread in Canada. Canadian lenders,
to keep up with foreign competition and to
deal knowledgeably with foreign investors,
may want to be familiar with the product.
Canadian mortgage brokers will want to be
able to discuss the product with both their
lender and borrower clients.
What is a unitranche
mortgage?
A tranche, in the context of mortgages, is one
of a number of mortgage loans which together
are either made (or come to be made) to the
borrower as a single transaction. Don't be
concerned if this sounds at all confusing. It will
be clear by the end of the article.
In many ways, unitranche mortgages are
simply a twist on syndicated mortgages.
From the perspective of
the borrower
e borrower will see no difference between a
unitranche mortgage and the usual mortgage.
e borrower will have negotiated a single
mortgage with a lender, signed documents
relating to a single mortgage, and been funded
a single mortgage.
From the perspective of
the lender(s)
e complexity of a unitranche mortgage lies
on the side of the lender.
e initial lender (sometimes lenders)
becomes involved with another or other
lenders. Amongst themselves they agree to
the initial lender's interest being divided into
two or more classes or tranches. ey agree
to the right of each tranche concerning
matters such as:
n priority in being paid out before other
tranches;
n the distribution of any payments received on
the mortgage (as to amount and timing);
n limitations on investments in the tranches;
n voting rights concerning the operation of
their tranche or the overall mortgage;
n determining when and how remedies under
the mortgage against the borrower will be
pursued; and
n how collateral proceeds will be distributed.
e lenders may need to enter into
multiple sets of negotiations involving two
or more tranches. is can result in multiple
sets of documents. An administration must
be established to deal with administering the
ongoing mortgage, including distributing
the financial returns of the mortgage to
the lenders.
Unitranche 101
BY RAY BASI
Are you up to speed on this emerging mortgage trend?
