A repurchase facility (“Repurchase Facility”) is a financing arrangement pursuant to which a bank or other credit institution (a “Buyer”) provides liquidity to an entity that originates or acquires real estate related assets (a “Seller”) by purchasing such assets with a simultaneous agreement that the Seller will repurchase the assets on a future date. A Repurchase Facility may be used to aggregate mortgage loans or other qualifying assets that a Seller has originated prior to a takeout in connection with a securitization, or a Repurchase Facility could be used to provide financing for a static pool through the maturity date of the mortgage loans.
Repurchase Facilities are typically structured as either a “Repurchase Agreement” or a “Securities Contract” (each as defined under Title 11 of the United States Code (as amended, the “Bankruptcy Code”)). A “Repurchase Agreement” requires that the underlying asset be repurchased by the Seller within one year of the date the asset was purchased by the Buyer, and only certain types of assets are permitted to be sold. On the other hand, an asset financed pursuant to a “Securities Contract” does not have to be repurchased within one year, but a Buyer that is a party to a “Securities Contract” must meet certain criteria described in the Bankruptcy Code.
Repurchase Facilities are attractive to Buyers because, unlike traditional secured debt warehouse financing arrangements, Repurchase Facilities are structured as protected contracts under the Bankruptcy Code. As such, Repurchase Facilities qualify for safe harbor protections from, among other things, the application of the automatic stay if the Seller files for bankruptcy. In general, the automatic stay prohibits a lender from terminating a contract with a debtor, accelerating the debtor’s obligations and liquidating the underlying collateral without obtaining prior approval from the bankruptcy court, but, because a protected contract is not subject to the automatic stay, court approval is not required by a Buyer undertaking such enforcement actions.
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