Natasha,
Thank you for circulating the initial draft of the Mezzanine Loan Agreement on May 5. We have completed our review on behalf of MTDC and attach the following:
1. **Redline — Mezzanine Loan Agreement (MTDC Comments) (05.10.25).docx** — Our marked-up redline of the draft agreement, reflecting all of MTDC's proposed revisions.
2. **Open Issues List — Mezzanine Loan (05.10.25).xlsx** — A consolidated issues list organized by article, which I'll summarize below for ease of reference.
We recognize that a number of these items will need to be coordinated with Harrison Whitmore's team at Clearfield on the intercreditor side, and we are copying Rebecca so that Granite Peak can review in parallel. Our goal remains the May 1 target (which we are obviously now past) and, more practically, reaching agreement on all material terms by the end of May to preserve the June 15 closing date.
Below is a high-level summary of the principal open items:
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**I. Cure Rights (Articles 8 and 10)**
The draft provides the Mezzanine Borrower with only a five (5) business-day cure period for monetary defaults and a fifteen (15) calendar-day cure period for non-monetary defaults. Given MTDC's status as a government instrumentality — and the internal approval processes that entails — we believe these periods are unreasonably short for a $200 million mezzanine facility. We have proposed:
- Monetary defaults: ten (10) business days following written notice. - Non-monetary defaults: thirty (30) calendar days following written notice, extendable by an additional thirty (30) days where the default is susceptible to cure and HYW Mezzanine is diligently pursuing such cure.
We have also revised the "bad boy" carve-out guaranty triggers in Section 10.2 to exclude defaults that are cured within the applicable cure period. The current draft appears to make the guaranty spring upon the occurrence of any Event of Default regardless of subsequent cure, which is not consistent with market practice for construction mezzanine loans of this size.
**II. Intercreditor Mechanics (Article 12; Intercreditor Agreement Cross-References)**
Several provisions in the draft are internally inconsistent with the Intercreditor Agreement term sheet that was negotiated between Ironclad and Granite Peak. Specifically:
- **Standstill Period.** Section 12.1(b) references a 90-day standstill following an Event of Default under the Senior Loan before the Mezz Lender may exercise remedies. The Intercreditor term sheet negotiated on March 7 contemplated a 180-day standstill. We have conformed the draft to the term sheet.
- **Senior Loan Cure Rights.** Section 12.3 limits the Mezzanine Lender's right to cure Senior Loan defaults to monetary defaults only. We understand from the Intercreditor term sheet that the Mezz Lender would also have the right (but not the obligation) to cure non-monetary Senior Loan defaults, and we have revised accordingly — MTDC views this as protective of the overall capital structure.
- **Notice Provisions.** The draft requires that the Senior Lender provide default notices to the Mezzanine Lender, but does not impose a reciprocal obligation on the Mezzanine Lender to notify the Senior Lender of Mezzanine Loan defaults. We have added a mutual notification requirement, which we believe Clearfield will also expect.
We would suggest a three-way call with Harrison's team once you and Rebecca have had a chance to review our intercreditor comments so that we can align the Mezzanine Loan Agreement, the Senior Loan Agreement, and the Intercreditor Agreement simultaneously.
**III. Transfer Restrictions (Article 7)**
The transfer restrictions in the current draft are drafted as a blanket prohibition on direct and indirect transfers of any ownership interest in the Mezzanine Borrower or the Mortgage Borrower, with Granite Peak's consent required in all instances. We have several concerns:
- MTDC is a government instrumentality whose board composition is subject to Illinois statutory requirements. Changes in the composition of the MTDC Board of Directors should be carved out as a "Permitted Transfer" and should not trigger consent requirements or Event of Default provisions.
- The draft does not include any exception for transfers among MTDC-controlled affiliates. We have proposed a carve-out for transfers to entities that are wholly owned, directly or indirectly, by MTDC, provided MTDC retains operational control and the non-consolidation opinion is reaffirmed.
- The single-purpose entity covenants in Section 7.4 impose separateness requirements on HYW Mezzanine LLC that include a prohibition on "commingling assets." We are fine with this in principle but have revised the language to clarify that shared back-office and administrative services provided by MTDC (accounting, HR, IT) do not constitute commingling so long as costs are allocated on an arm's-length basis pursuant to a shared services agreement.
**IV. Purchase Option (Section 12.7)**
Section 12.7 grants the Mezzanine Borrower a purchase option allowing it to acquire the Mezzanine Loan at par plus accrued interest following a Senior Loan Event of Default. We appreciate the inclusion of this provision but have proposed the following modifications:
- The purchase option should also be exercisable following a Mezzanine Loan Event of Default (prior to any UCC foreclosure sale), not only following Senior Loan Events of Default.
- The exercise price should be the outstanding principal balance of the Mezzanine Loan plus accrued and unpaid interest plus Granite Peak's reasonable out-of-pocket costs — but should not include any prepayment premium, yield maintenance, or the 0.50% exit fee. The current draft is ambiguous on this point.
- The exercise period should be not less than sixty (60) days following notice from the Mezz Lender of its intent to commence enforcement proceedings, rather than the thirty (30) days currently provided.
**V. Other Notable Issues**
- **DSCR / Debt Yield Testing (Section 6.3).** The draft tests the combined DSCR covenant (minimum 1.20x) and debt yield covenant (minimum 8.0%) quarterly beginning at substantial completion. We have proposed that testing not commence until twelve (12) months after the first TCO (projected March 15, 2028), consistent with the treatment in the Senior Loan term sheet. Testing during lease-up against stabilized covenants would create an immediate technical default.
- **Insurance Requirements (Section 5.8).** The builder's risk coverage threshold is stated as $450,000,000. This should be $500,000,000 to conform to the Fortis Indemnity policy and the Senior Loan requirements. We assume this is simply a typographical error but have flagged it in the redline.
- **Ground Lease Provisions (Section 5.12).** The draft requires MTDC to obtain NYCEDC's prior written consent to the Mezzanine Loan and the pledge of the leasehold interest. We are in the process of obtaining this consent, but note that the ground lease (CRFN 2020000198762) requires only notice to, not consent from, NYCEDC for subordinate financing. We have revised Section 5.12 accordingly and will provide a copy of the relevant ground lease provisions for your reference.
- **Interest Rate (Section 2.2).** We note the draft states the Mezzanine Loan interest rate as 11.50% per annum fixed, consistent with the term sheet. No comment here — just confirming we are aligned.
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We are available any day next week to discuss. Douglas and I have a conflict on Wednesday morning but are otherwise flexible. If it would be helpful, we are happy to host at our offices at One Liberty Plaza.
Please let us know your and Rebecca's availability, and we will coordinate with Clearfield to set up a joint call on the intercreditor items.
Best regards,
Grace Nakamura Senior Associate, Real Estate Calderwood & Harkness LLP One Liberty Plaza, 55th Floor New York, NY 10006 T: (212) 471-3288 gnakamura@calderwoodharkness.com
C&H Matter No. 1031-00004
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