In one sentence
The informal name for non-recourse carve-outs, covering sponsor conduct such as fraud, misapplication of funds, waste, and unpermitted transfers.
The longer version
The term is industry shorthand rather than a defined concept, and it covers the same ground as the carve-out guaranty. What it captures is the intent: the lender accepted a non-recourse structure on the assumption the sponsor would behave, and these provisions price the exception.
Because the phrase is informal, the loan documents themselves use precise language instead. When a carve-out is being negotiated the discussion is about the drafted list, the knowledge and materiality qualifiers, and whether an act by a property manager or a third party can trigger sponsor liability.
Common questions
- Why are they called bad boy carve-outs?
- It is industry shorthand for the idea that liability springs back when the sponsor behaves badly. The loan documents never use the phrase; they list the specific acts.
- Can a third party trigger a carve-out?
- That is one of the standard negotiation points. Sponsors push to limit triggers to acts they controlled or consented to, so that a property manager's error does not create personal liability.
- Do carve-outs survive a loan sale?
- Yes. The guaranty runs to the holder of the loan, so an assignee takes the benefit of it along with the note.
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