Minimum multiple or a hard outside redemption date, when a sponsor will only give you one

I haven't done one of these yet, so bear with me, but the multiple sounds like it protects you from being paid off too early and the date protects you from never being paid off at all. Aren't those two different fears? I'd have guessed which one you pick depends on whether you think this particular sponsor is more likely to be greedy or stuck.

@ryanmck27 has it about right, and stuck is the more common failure. Across small portfolios the pattern is consistent. A partner who wants out early comes up once in a long while, and a partner who cannot get out for years comes up again and again. If frequency is the guide, the date is the more useful clause.

Consider a pref with a 1.35x minimum and no date. The asset performs fine. The sponsor holds it four extra years because the refi math does not work at the new rates. The pref holder gets their 1.35x eventually and their annualized number is mediocre. Nobody breached anything. That is the failure mode nobody diagrams.

Dumb question. If the outside date passes and the sponsor just doesn't pay, what actually happens the next morning? Someone earlier in another thread said the remedy needs the senior lender to agree to things. So is the date real or is it a letter?

That is the whole argument in the original post, @mitchell_ray4, and the answer is not clean. The date gives you standing to act. What acting gets you depends on the documents.

The thing that pushes me toward the multiple is that it survives a bad market. If the outside date lands in a year when nothing is refinanceable and nothing is selling, your trigger fires into an empty room and your practical choice is to amend. A minimum multiple doesn't care what year it is. It just sits in the waterfall and grows your claim on whatever eventually happens.

I'd keep the date, with a specific condition, and the reason is that @diane_kowalski's point argues for the date rather than against it. A minimum multiple that accretes past what the asset can support is an accounting entry. Take a position where the multiple has grown beyond any reasonable value of the property. The recovery is still whatever the sale produces minus the senior, and a holder in that spot can watch a multiple that looks generous on paper pay out at 0.7x. The multiple defined the claim beautifully and the property paid what it paid. What the date does is put a decision on a calendar. Even if the remedy is weak, the amendment conversation happens on a date you chose, at a time when the sponsor needs something from you, which is the only leverage a subordinate position reliably has. Repriced coupons and additional protections get negotiated in exactly that conversation, and none of it happens without a date forcing it. The condition is that the date has to come with something that hurts if it's missed. A default rate that steps up, or the sponsor losing discretion over distributions. A forced sale process that doesn't require senior consent to start, even if closing does. A date with no consequence attached is a calendar reminder. And @monica_tran3's example is right about the outcome, but the reason it happened is that there was no date, so the sponsor's decision to hold four more years cost him nothing.

@wendy_park48, the distribution discretion one is the piece property managers see first. Once the pref holder controls whether cash leaves the property, behavior changes within a month. Nothing else in the document moves people that fast.

The multiple is the better pick, mostly because of what senior loan documents tend to contain. The redemption right you would be relying on frequently collides with the senior's lockout or defeasance provisions, so the date you negotiated turns out to be a date you cannot act on without a consent you do not control. @wendy_park48's version works if you can get the consequence clause, and the date is better in that case. The common pattern is that sponsors give the date and then fight every one of the consequences, so you end up holding the weaker half of what you asked for. Also the multiple gives you something the date never does, which is protection against a fast win. The property reprices, the sponsor refinances in month 15 at a lower rate, pays you your coupon and shows you the door. That is the outcome where the multiple earns its whole negotiation.

There is a middle draft that shows up more than this thread suggests, which is a minimum multiple that steps with time. 1.20x if redeemed inside 18 months, 1.30x after that, plus a redemption date with a default rate step-up. You pay for it in the coupon, so it is not free, and buying it usually beats picking. On the pure choice, @sonia_alvarez has it right. Self-executing beats discretionary. The number of remedies in these documents that require someone else to agree is what surprises people who have not read a stack of them, and any protection that operates as arithmetic in the waterfall is worth more than its face value for that reason alone. Whether a specific remedy is actually exercisable given the senior documents is a lawyer question in every deal.

Reading all of this and my takeaway is that the answer flips depending on whether the deal's problem is time or price. Which you don't know when you're signing.

@jordan_ellis2, more is knowable at signing than it feels like. Look at the business plan's dependence on an exit. A stabilized cash-flowing asset with a modest plan produces the slow failure, so the date matters more there. A heavy value-add with a big projected sale in year three produces the fast one, either a quick win with an early exit or a wipeout, so the multiple matters more there. The test that decides it in underwriting is to model the position at three exit dates, month 18, month 36, month 72, and look at what each protection produces in each case. On stabilized deals the multiple and the coupon converge, so the multiple buys almost nothing past year four while the date is worth a lot. On short-plan deals the multiple is worth several hundred basis points and the date is a formality because everyone wants out anyway. That's a mechanical test and it gives a different answer per deal, which is why there's no single answer to @raj_mehta14's question. What shouldn't be accepted is a date with no consequence, which is where @wendy_park48 and this land in the same place from different directions.