Debt service and financing structure
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docs(corporate): fix fabricated per-asset ICR distribution-gate mechanism -- real governing documents (Sixth/Seventh Amended LPA, Offering Prospectus Sections 1/2/3/5/7) describe the Interest Coverage Ratio as an aggregate partnership-level covenant on new borrowing (1.20x floor before issuing First Secured Mortgage Debentures), not a per-asset distribution gate with a suspension protocol; corrected across investment-units, distribution-declaration-mechanics, perpetual-equity-model, and 13 other articles that repeated or cross-referenced the fabricated version (EN+ES)
@@ -7,22 +7,22 @@ index_group: financing-discipline type: topic content_type: topic quality: complete short_description: "How commercial mortgage financing is structured within direct-hold limited partnerships: loan-to-value conventions, interest rate risk, and the interaction between debt structure and the ICR distribution gate." short_description: "How commercial mortgage financing is structured within direct-hold limited partnerships: loan-to-value conventions, interest rate risk, and the interaction between debt structure and the ICR borrowing covenant." status: active bcsc_class: public-disclosure-safe language_protocol: PROSE-TOPIC last_edited: 2026-07-11 last_edited: 2026-08-24 editor: woodfine-editorial paired_with: debt-service-and-financing-structure.es.md --- Two constraints govern the financing structure in each direct-hold [[limited-partnership-structure|limited partnership]]: the loan-to-value limit set by the lender, and the 1.2× [[cre-financial-metrics|Interest Coverage Ratio]] (ICR) floor lender, and the 1.20× [[cre-financial-metrics|Interest Coverage Ratio]] (ICR) floor established as a covenant in the partnership's governing agreement. Commercial real estate acquisitions are routinely financed with a combination of equity and mortgage debt. These two constraints determine the maximum mortgage quantum for a given asset, the interest obligation that the ICR distribution gate must clear, and the interest rate risk profile of the investment. the interest obligation the ICR covenant tests against before further secured debt can be issued, and the interest rate risk profile of the investment. ## Key takeaways @@ -73,15 +73,15 @@ or lower than the original rate. Floating-rate mortgages expose the LP to immediate changes in debt service cost as benchmark rates move. An upward movement in benchmark rates increases interest expense and reduces the ICR, potentially triggering the distribution suspension protocol if the rate increase is sufficient to breach the 1.2× floor. ICR, potentially constraining the LP's capacity to issue further secured debt if the rate increase is sufficient to breach the 1.20× floor. ## Refinancing risk At mortgage maturity, the LP must either repay the outstanding principal or refinance with a new mortgage. Refinancing risk arises when credit conditions, property values, or lender appetite have deteriorated since the original financing: the available mortgage quantum may be lower (due to LTV compression or a decline in the property's ICR), and the interest rate be lower (due to LTV compression or a decline in the LP's ICR), and the interest rate may be higher. If the available refinancing proceeds are insufficient to repay the maturing mortgage, the LP must inject equity capital from its unit holders or sell the asset to repay the lender.