El Ad US: what sits behind Bond A, the BVI structure, and tax transparency

What This Follow-up Is Isolating

The main article focused on execution risk across the portfolio and on the time Bond A bought the company. This follow-up isolates the layer Bond A holders actually face: the issuer itself, the management agreements, and the legal path that connects U.S. assets to an Israeli bond indenture.

First point: the issuer itself was only formed on December 3, 2025 in the British Virgin Islands, and before the bond issuance was completed it had no operations, assets, or liabilities other than negligible share capital. This was not a long-standing operating platform that later raised debt. It was a funding layer built for the issuance.

Second point: even after the issuance, there is no independent operating platform here. The company says it has no independent operating and management mechanism, no employees, and that its senior officers are employed through the management company. In that structure, the question is not only what the real estate is worth, but who actually runs the system and on what terms.

Third point: Bond A protection does not rest on direct collateral. It rests on a package of undertakings: Israeli-law insolvency and restructuring access, a commitment to preserve U.S. tax transparency, distribution limits, debt and lien limits, an interest reserve, and acceleration triggers. That is a real protection package, but it is still a contractual one.

The Issuer Layer: a BVI Vehicle Without Its Own Operating Platform

The core issue is not just that the company is incorporated in the BVI. It is that the issuer itself was created for the raise. Until the issuance was completed, it had no real activity. The rights were later transferred into it, but the platform that actually manages those rights remained outside the issuer.

The company describes itself as part of Elad Group's fully integrated structure. In practice, that means the operating envelope, acquisitions, financing, planning, legal support, finance, marketing, and property management, is provided through the management company and other entities in Elad Group. The senior officers who lead the issuer are not employed by the issuer. They are employed by the management company and also serve projects and assets that were not transferred into the public issuer.

That creates a dependency that cannot be waved away. The company itself calls the management company the core of the group's activity, and adds that it has no employees and that all of its personnel are employed through the management company. So Bond A holders are not only exposed to a real estate portfolio. They are also exposed to a related-party services agreement, to the execution quality of that related party, and to whether the interests of the bond layer stay aligned with the interests of the wider group.

The master services agreement reinforces that reading. It came into force when the issuance closed and remains in force as long as Bond A is outstanding. The management company provides senior management, back-office services, and additional services, and in return it is entitled to an annual fee equal to 1% of the company's net asset value. The agreement also gives the management company the right to replace office holders, subject to board approval, and it can be terminated only by the management company. That is not a technical detail. It means the issuer is contractually dependent on an external affiliated manager, and day-to-day control over the operating platform does not sit inside the public issuer itself.

There is another pricing layer on top of that at the project level. Under the development and planning agreements, the management company is entitled to up to 4% of total construction costs for projects under development, on top of reimbursement for customary expenses. In other words, the same outside affiliated platform that runs the issuer can also charge annual management fees at the issuer level and development fees at the project level.

What makes this more than a theoretical concern is that the related-party burden is already visible in the accounts, not only in future agreements. At year-end 2025 the company shows related-party balances for development and supervision of $28.862 million, split between $7.259 million current and $21.603 million non-current. The company also states that the compensation and compensation-related obligations recognized for 2025 to the management company and companies related to the controlling shareholder amounted to about $28.862 million.

Two things need to be separated here. At the balance-sheet level, that amount stems from a legacy Alina development and supervision agreement that was later formalized for services provided through the end of 2024, with the remaining balance payable in five equal annual instalments starting on June 30, 2026. But that is exactly the point. Even before the recurring 1% NAV fee and the up to 4% construction-cost fee start to sit on top of Bond A's life cycle, a material related-party balance is already embedded in the structure. Bond A holders therefore need to read the management-fee layer not just as an operating expense line, but as a built-in route through which value can leave the issuer layer.

Tax Transparency and Israeli-Law Access: Why These Clauses Were Put Into the Indenture

If Bond A had been issued by a domestic Israeli company with a direct local operating platform, some of these clauses would sound more routine. Here they sit at the center of the story because the issuer is a BVI entity and the assets are in the U.S. The indenture and the side undertakings are therefore trying to import an Israeli enforcement path into a structure that would otherwise sit outside a local investor's natural reach.

The package starts with tax transparency. The controlling shareholder undertook that as long as Bond A remains outstanding, the company and the entities it holds will not elect to be treated as corporations for U.S. tax purposes and will continue to be treated as tax transparent for U.S. tax purposes. That matters because tax transparency here is not a vague efficiency slogan. It is an explicit negative covenant not to change a tax classification the structure relies on.

The annual report adds an important BVI layer on top of that. The company explains that a BVI entity that is tax resident outside the BVI is exempt from economic-substance requirements, but still has to report activity and tax residence information to the BVI International Tax Authority. Based on its own analysis, the company expects to report through its registered agent that it is exempt from those economic-substance requirements. In other words, the BVI layer does not disappear. It is managed through a specific reporting and tax-status framework that the company is openly relying on.

Next comes the insolvency package. The controlling shareholder, office holders, and directors signed irrevocable undertakings not to oppose a request by the trustee or the bondholders to apply Israeli law to a restructuring or insolvency process, not to initiate proceedings outside Israel in order to obtain protection from such a process, not to challenge the jurisdiction of Israeli courts, and not to initiate foreign-law insolvency proceedings on their own. They also undertake not to oppose bondholders' right to bring derivative and class actions.

The indenture goes a step further. The company and its subsidiary undertake that whenever they contract directly with a third party, Israeli law will govern that agreement and insolvency proceedings against the company or the subsidiary will be opened only in Israel and under Israeli law. There are carve-outs, including ancillary agreements of held companies and hedging agreements, but the direction is clear: the documents are trying to reduce the scope for forum shopping as much as possible.

That protection is still not absolute. Both the undertakings document and the indenture say that if a foreign insolvency process is nevertheless opened by a foreign creditor, the commitment is to use best efforts and argue forum non conveniens, subject to applicable law. That matters. The documents build a preferred Israeli path, but they do not erase the possibility that a multi-jurisdiction stress case could still become messy.

The enforcement layer can be summarized this way:

The Protection Package: What Bond A Holders Actually Get

The first sentence to remember is the simplest one: Bond A is unsecured. It is not backed by collateral, liens, or any other security interest. Every other protection therefore has to be judged not against hard collateral, but against whether it meaningfully reduces value leakage and gives bondholders enough control in a stress case.

On the positive side, the covenant package is not cosmetic. On an ongoing basis the company has to keep consolidated equity of at least $110 million, adjusted net financial debt to net CAP of no more than 78.5%, and an equity-to-balance-sheet ratio of at least 21%. If one of those financial covenants is breached for two consecutive quarters, that becomes an acceleration event.

But the indenture builds a second, tighter layer exactly where shareholders tend to pull value out: distributions. A distribution is allowed only if it does not exceed 50% of accumulated net profit after tax since October 1, 2025, after excluding unrealized revaluation gains and losses and accumulated depreciation expense, and only if after the distribution equity stays above $130 million, net debt to CAP stays at or below 65%, the equity-to-balance-sheet ratio stays at or above 26%, no acceleration trigger exists, and there are no warning signs. That is important because it shows the indenture is stricter on cash leakage than it is on ordinary risk management.

There is also an interest reserve. The company is supposed to fund the trustee at the outset with an amount equal to half of a semiannual interest payment, and then keep topping up the account so that at each reserve-replenishment date the balance is not below the next interest payment. The rights in the reserve account are pledged to the trustee through a first-ranking fixed charge, and that charge is supposed to be registered in the BVI charge registries as well. That helps, but even here the limit is explicit: the indenture itself says the funding commitment is not backed by a self-executing mechanism, so if the company does not put the cash in, the trustee mainly gets ex-post enforcement tools and, after the specified period, an acceleration right.

The main weakness in the package sits in the lien structure. On the one hand, the company and its subsidiary are not allowed to create a general floating charge unless they also grant Bond A holders equivalent pari passu security, and they are restricted in taking on additional debt and specific liens. The company also undertakes not to take borrowing from non-Israeli lenders, except for certain U.S. hedge-related facilities, and the subsidiary is not supposed to take financial debt at all. On the other hand, the indenture expressly says that other subsidiaries, other than the relevant subsidiary, can pledge their assets in any way without Bond A holder approval and without giving parallel collateral to Bond A. That is the real gap. The protections are relatively strong at the issuer and subsidiary layer, but they do not stretch with the same force across the full chain underneath.

So the right way to read the indenture is not "there are covenants, so the problem is solved." It is "there is a framework designed to impose Israeli discipline on a foreign issuer structure, without turning it into a secured bond."

What This Means in Practice for Bond A Holders

Bond A does not sit on a standard local real-estate issuer with its own management team, employees, and directly pledged assets. It sits on a BVI issuer that was created for the raise, relies on an outside management company from the controlling shareholder's group, and operates through a contractual package that tries to import Israeli control over tax, forum, distributions, debt, and liens.

The positive reading is that the package looks deliberate. The documents did not stop at a vague promise of transparency or governance. They built personal undertakings, periodic disclosure obligations, an interest reserve, numerical covenants, and distribution limits. That is not trivial.

The other side is that this package matters precisely because the base is structurally softer. There is no direct collateral. There is no independent operating platform. There is explicit dependence on an affiliated manager. There are already material related-party obligations in the system. And some of the tightest restrictions work well at the issuer and subsidiary layer while opening up materially further down the chain.

Bottom line: a Bond A holder is not buying direct control over assets. They are buying a claim on a structure that is trying to make a foreign BVI issuer enforceable in Israel. The real test of that structure will therefore not be only project execution, but whether this undertaking package actually holds at the exact moment a creditor needs access to the cash, the management layer, and the court.