Pari Passu loans

[Jon Holdman]

Has anyone had any experience with a "pari passu loan"? The term means "equal footing" or some such. This came up in a situation where two people might be lending to one borrower, and they want to be in equal position, rather than one having a first and the other a second. I did some googling around, and this seems somewhat common for big commercial loan where the first loan is broken into some number of pari passu pieces. The pieces need not be the same size, but are all in equal position, and should be paid out proportionally to the size. This would just be a rehab loan, not a multi-million dollar commercial deal.

Would this be done as two separate loans, each stating they are pari passu to the other? Would the borrower make two separate payments, one to each lender? Would there be a side letter or some other agreement between the two lenders as to what to do if there was a default, or what happens if one defaults and the other is current?

The alternative (other than a first/second) would be to form an LLC to make then loan, and have each of the lenders as members of the LLC. More formal, but also more work and expense to set up the LLC.
Thanks,
Jon