Financial Advances and the Revolving Credit Facility
The advancing agent may at times fill the gap where there is an interest shortfall on the senior notes, or to make a cure advance on a B-note. Another form of financing, a revolving credit facility, may be used to aid the acquisition of assets.
An interest advance may be made by the advancing agent in the event of an interest shortfall on the senior notes if the advance is deemed recoverable.
Such an advance would be reimbursed along with any accrued interest first in the interest waterfall and then with principal proceeds, if interest proves insufficient.
A cure advance may be made by a B-note investor to cover a shortfall in property cash flow and forestall a default. In the CRE CDO structure, such an advance may be made by the advancing agent contingent on approval by the majority of subordinate noteholders, if the portfolio manager believes the advance to be recoverable.
The revolving credit facility (RCF) may be drawn on to fund the acquisition of assets during the investment period and the reinvestment period. The RCF serves to reduce the negative carry effect of retaining a large cash balance in the deal and gives the manager flexibility with the timing of acquisitions. Draws on the credit facility are reimbursed pro rata with Class A interest.