ANDORRA Law and Practice Contributed by: Elena Redondo, Albert Hinojosa and Marc Ambrós, Cases & Lacambra
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
• A pledge granted over credit rights deriv - ing from any income-producing agreement entered into by the borrower and related to the specific real estate asset. In a non- exhaustive manner, a pledge may be created over insurance policies, lease agreements or hedging agreements. The key point is that such agreements generate liquid, due and payable credit rights in favour of the borrower. The creditor shall notify the counterpart of each pledged agreement in an enforcement scenario to receive any payments due or positive-balanced set-off rights deriving from the pledged credit rights. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Lending is subject to the reservation of activity within Andorra, and it can only be carried out by local banks authorised to operate as such by the Andorran Financial Authority ( Autoritat Financera Andorrana – AFA). Therefore, direct lending granted by foreign lenders to finance an acqui - sition of commercial real estate assets located within Andorra is not allowed, as it would result in a breach of the reservation of activity regime. However, indirect lending (ie, granting financing to a foreign entity that will acquire the real estate asset located in Andorra) would be allowed. The recently enacted FIRRMA has expanded the scope of transactions subject to the Commit - tee’s review by granting CFIUS the authority to examine the national security implications of a foreign acquirer’s non-controlling investments in US businesses that deal with critical infrastruc - ture, critical technology, or the sensitive personal data of US citizens. Therefore, FIRRMA grants the Committee the authority to limit the transac - tions that are subject to its review by providing that it “shall specify criteria to limit the appli - cation of such clauses to the investments of
Acquisitions of commercial real estate locat - ed within Andorra are generally financed with recourse to debt by means of one-off or revolv - ing loans or credits granted by local banking entities. The financing structure and disposal conditions may vary widely, depending on the specific char - acteristics of the acquisition and the borrower. However, it is common for the guarantee scheme of such financing operations to encompass a mortgage granted over the real estate asset and one or several pledges granted over any credit rights deriving from agreements entered into by the borrower (eg, insurance contracts) or other instruments (eg, borrower’s bank account(s)). There are no special financing options for acqui - The standard security package for a commercial real estate transaction would normally encom - pass the following. • A first-ranking mortgage over the target real estate asset. • A pledge over the shares of the company holding the target real estate asset (usually an SPV). • A pledge on the company’s bank accounts (over the bank account balance and the bank account itself), usually complemented by periodical cash-sweeps, limits for maximum- free disposal amounts or minimum-unavail - able amounts and disposals subject to the consent of the financing entity. sitions of large real estate portfolios. 3.2 Typical Security Created by Commercial Investors
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