What is the purpose of the Equity Pledge required by MICC for Delta Hotels By Marriott franchisees?
Delta_Hotels_By_Marriott Franchise · 2025 FDDAnswer from 2025 FDD Document
eholders]* ("Members / Partners"), shall deliver to MICC a Reimbursement Agreement ("Reimbursement Agreement") and shall cause the [Members / Partners] to deliver to MICC a first priority Assignment of Equity Interests and Security Agreement ("Equity Pledge") encumbering one hundred percent (100%) of the [Member / Partner / shareholder] interests in Borrower and the right to any distributions on account thereof.
- (b) The Reimbursement Agreement shall provide that any advance made by MICC to Lender to cure a Borrower default shall be repaid by Borrower and/or [Members / Partners] to MICC, together with interest and other fees incurred by MICC. Advances made by MICC under the Credit Enhancement Agreement shall accrue interest at an annual rate of interest equal to one-half of one percent (0.5%) above the rate of interest accruing on the Loan.
- (c) The Equity Pledge shall secure the reimbursement obligations to MICC for advances made by MICC to Lender under the Credit Enhancement Agreement. To the extent that advances made by MICC are not repaid in accordance with the terms of the Reimbursement Agreement, the Equity Pledge shall permit MICC to (i) receive any and all net operating income from the operation of the Project and/or sale, refinance or casualty proceeds that would otherwise be payable to Borrower and/or [Members /Partners] up to the amount due under the Reimbursement Agreement, and (ii) foreclose the [Member / Partner] pledges, which may result in MICC becoming the owner of the [Member / Partner] interests in Borrower.
- 9. MICC Documents: As a condition to MICC providing the Credit Enhancement to Lender, the following documents shall be delivered to MICC in form acceptable to MICC: (i) Reimbursement Agreement executed by Borrower and [Members / Partners]; (ii) Equity Pledge executed by the [Members / Partners]; (iii) UCC Financing Statements; (iv) Guaranty Agreement (limited to non-recourse carveout acts identified in the Guaranty Agreement)
- **10.
Source: Item 6 — Obligations of Franchisee.** Franchisee agrees to the following: (FDD pages 363–513)
What This Means (2025 FDD)
According to the 2025 Delta Hotels By Marriott Franchise Disclosure Document, the Equity Pledge is required by Marriott International Capital Corporation (MICC) as a condition for providing credit enhancement to the lender. The Equity Pledge secures the reimbursement obligations to MICC for any advances MICC makes to the lender under the Credit Enhancement Agreement to cover borrower defaults.
In practical terms, if a Delta Hotels By Marriott franchisee defaults on their loan and MICC advances funds to the lender to cover the default, the franchisee is obligated to repay MICC. The Equity Pledge ensures that MICC has a security interest in the ownership equity of the franchise. If the franchisee fails to repay MICC according to the Reimbursement Agreement, MICC can take action.
Specifically, the Equity Pledge allows MICC to receive net operating income from the Delta Hotels By Marriott project, as well as proceeds from any sale, refinance, or casualty event, up to the amount owed under the Reimbursement Agreement. Furthermore, MICC has the right to foreclose on the ownership equity (member/partner interests) pledged by the franchisee. This foreclosure could result in MICC becoming the owner of the member or partner interests in the borrowing entity.
In addition, the MICC documents contain due on sale and due on encumbrance clauses, which means a Delta Hotels By Marriott franchisee cannot sell the project or encumber it without MICC's prior written consent. MICC has the sole discretion to grant or withhold such consent. The Equity Pledge is one of several documents, including the Reimbursement Agreement, UCC Financing Statements, and Guaranty Agreement, that must be delivered to MICC as a condition of the credit enhancement.