Credit Tenant Lease Financing

CTL financing enables real estate and business operators to leverage the credit quality of their tenants to obtain efficient long-dated fixed-rate capital.

Tenant / Credit
“Credit-worthy” single tenant (multi-tenant may also work)

Lease / Contract type
Bondable Net, Absolute Net, Triple Net, Double Net, Modified Gross, etc.
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Note term
Typically, coterminous with the remaining term of the underlying contract.

Amortization
The baseline CTL program provides for an amortization structure that either fully amortizes (or amortizes down to an amount not to exceed 5.0% of initial par) coterminous with the remaining lease/contract term.

However, there are many ways in which balloon structures may be incorporated into a CTL construct, e.g., through the use of residual value insurance, balloon note guaranty products, and through the issuance of alternative structured products (See information on Structured Debt Products vertical).

Recourse
Non-Recourse Carveouts only

LTV
Up to 100% (using leased fee valuation methodology)

LTC
No LTC basis constraints

DSCR
Typically, 1.00x – 1.05x

Transaction rating
Typically, CTLs are non-rated, although rating agencies are involved in certain instances, e.g., if the underlying credit is non-rated and/or to provide the overall instrument with greater liquidity.

Asset/Collateral Type
CTL financing often involves real estate collateral in which case a perfected lien (1st or 2nd) is provided.  In some instances, CTL financing may also be applied on an unsecured basis.

Financing Instrument
Typically, CTLs are structured as either taxable private placements or 144a private placements.

Construction Funding
The program may be applied to various ground-up, redevelopment or rehabilitation construction build-to-suit projects.  The financing will include various construction risk mitigants along with a capitalized interest-only period to service the debt until the time of rent commencement.

• Investment grade credit tenant lease
• High yield credit tenant lease
• Tenant improvement lease
• Equipment lease
• License agreement
• Installment contract
• Concession agreement
• Services agreement

• Retail
• General office buildings
• Corporate headquarters
• Medical office buildings
• Data center
• Distribution centers
• Sports stadiums & athletic facilities
• Hospitals
• Sort and fulfillment centers
• Classrooms and administration buildings
• Central utility plants
• Raw land
• Cultural Institutions
• Airport Facilities / Hangars
• Manufacturing Facilities
• Specialized Research and Development Facilities
• Golf Courses
• Apartment Buildings
• Student Housing / Dorms
• Signage

• Corporate
• Healthcare
• Higher-education (public and private)
• Not-for-Profit
• Government (federal, state, and local)
• Public private partnership (P3)
• Hospitality
• Retail
• Professional sports
• Research & cultural institutions

Public Rated Credits
Credits with a public investment grade credit rating from an NRSRO, e.g. Moody’s, S&P, Fitch, DBRS, Kroll, AM Best, or Egan-Jones.

Credits with an NAIC Designation
Credits that do not have a public credit rating but that have previously issued debt in the private placement market and received a designation / rating from the National Association of Insurance Commissioners (NAIC).

Non-Rated Credits (Public and Private)
There are many companies, municipalities, 501c3s and the like that are both public and private but do not have a rating agency relationship and/or have no debt and as a result do not carry a credit rating or NAIC designation.  In these instances, provided financial audits are available, Mesirow can assess the credit worthiness and advise on different ways in which a CTL construct may be applied.

Non-Investment Grade (High-Yield) credits
High-Yield credits will be considered on a case-by-case basis.

• Distribution
• Complementary business units within the firm
• Residual Note capabilities
• Ability to provide liquidity / Balance Sheet access when needed
• Access to in-house research, sales, trading

Can you have a balloon at the end of a CTL structure?
Yes, there are a variety of methods by which amortization may be extended.

Can you be subject to a ground lease?
Yes, very common in the context of a CTL application.

Can CTL be used to finance a condominium interest?
Yes.

Can CTL be used to finance non-investment grade credits?
Yes, on a case-by-case basis subject to certain criteria being met.

Can CTL financing be used to finance owner-user space?
Yes, CTL application is very commonly used application for owner-user real estate. Typically, in this instance a lease will be put in place between two affiliate parties with an SPE of the underlying credit package as landlord and the actual credit package (credit worthy entity) as the tenant.  The lease is used and structured with the intent to achieve the financial objectives of the owner-user.

Can CTL be used to finance development and construction?
Yes, CTL financing is commonly utilized as a one-stop shop construction permanent financing tool providing borrowers/developers/users the opportunity to lock in all of its economics “upfront” and access the capital for purposes of erecting the facility/project.

Can your CTL be used to finance multi-tenant situations?
Yes, both with and without the implementation of a condominium regime.