Secured Loan Lenders

Regarding borrower, secured credit approval usually implies both German and state laws. Conditions of credit documentation are subject to national laws. For most large deals, lenders and borrower select New York as the applicable laws because New York is a center of operations and lenders see New York as a more favorable place to settle litigation.

Moreover, the establishment and improvement of securities over most individual assets and the assertion of such securities outside insolvency are generally regulated by Art. 9 of the Single Commercial Code. Different legislation may be applicable to non-personally identifiable assets subject to the type of securities contained in the securities pack (e.g., securities on immovable properties are subject to the inconsistent immovable properties legislation of the state in which the immovable is situated).

Is there a particular set of regulatorial questions that a potential lender should consider when agreeing or concluding a secured credit arrangement? Examples include telecom operators, broker-dealers and gambling casinos that are regulated and may restrict their capacity to deliver securities or requiring government authorization to deliver securities for certain asset types.

Is there a particular set of regulatorial questions that a potential creditor should consider when agreeing or concluding a secured credit arrangement? Prudential questions that pertain to a creditor vary depending on whether the creditor is a supervised undertaking. There are a number of regulative demands on regulators that regulators impose on regulators that normally do not govern non-bank lenders.

Who are the current secured funding vendors in your jurisdictions (e.g. global banking, foreign banking, foreign banking)? Worldwide and national banking continues to be the main arranger and underwriter of secured financings in the United States. Often in the unsecured banking syndication credit environment - particularly for sub-investment-grade borrower - arranged credit facilities are fully or partially unsecured by the arranged banking institution and subscribed to by a wide range of parties, among them secured credit facilities, loan pools and insurers.

Nevertheless, non-bank lenders (including venture capital firms, mid-cap financings and retirement plans) have increasingly been playing a leading part in the US mortgage markets as suppliers of secured finance to sub-investment-grade borrower groups. A number of determinants have contributed to the increase in non-bank lender activities in recent years, among them supervisory authorities, which are imposing tighter constraints on supervised banking through the transposition of the reviewed guidelines on leveraging.

Does your legal system use customary commercial credit transaction documents? In contrast to Great Britain, for example, there is no standardised documentary evidence for company-secured credit lines in the USA. Whereas certain terms are usually contained in loan contracts, loan contracts are usually bargained for on a deal-by-deal base.

Syndications Are secured credit syndication arrangements specific to your legal system? Yes, revolving credit lines are standard practice in the United States. Nearly all large companies use the syndicated credit market for their banking operations. In general, one of the banks that is a contracting partner of the loan contract (usually the managing institution that arranges the facility) is designated as the management agency for the consortium of lenders under the loan contract.

Management agents are in charge of the day-to-day management of the credit facilities. Payment, notifications, reporting and other communication between the Mortgagor and the Creditor Credit Group shall be made through the Management Agents. Under a secured credit arrangement, lenders also engage a security broker to retain the security in the name of the lenders in the case of defaults and to appeal against the security.

Usually, the same institution is acting as both administrator and collateralsgent. For the most part, the agency bench is excused and exempted from liability of the lender and the borrowers. In your jurisdictions, does the Act allow securities and warranties to be fiduciarily retained by a securities custodian for the account of the consortium of banks?

Securities in the United States are actually fiduciarily retained by the hedging agents for the account of the hedgers. As a rule, warranties are issued in favor of the hedging agents in the name of the secured party. Funding of SPE Is it customary for secured financial operations for SPE' (Special purpose vehicle ) financial instruments to be used to store the asset to be funded?

As a rule, would collateral be provided for the SPV or would lenders demand immediate collateral? Typically, no SPAs are used for secured business loans. In the United States, loan contracts often allow the borrower to charge interest at either a basic interest rates calculated on the basis of the bank's key interest rates or LIBOR.

The choice of the LIBOR interest usually results in a lower overall interest than the basic interest rates, but does require prior notification to the lenders for taking out a loan under the loan contract (usually at least two working days). Furthermore, a LIBOR "floor" has traditionally been incorporated into the loan contract, which sets a minimal LIBOR interest level ranging between 0% and 1%.

Basic mortgages, on the other hand, are generally available at short notice, sometimes on the same date, and can be prepaid at any given moment without the need for interval charges. Using and creating warranties Are warranties used in your jurisdictions? Yes, warranties from affiliates of the Mortgagor and its parents are a frequent characteristic of business-backed credit operations.

Certain operations are also guaranteed by the affiliate. Guaranties are provided by contractual means, either by means of clauses contained in the loan agreements or, more usually, by means of a guarantee provided separately by the guaranteeor. If, however, the surety provides a surety over its property (which is typical in a secured loan operation with guarantees), other measures are necessary to complete a surety over the guarantor's property.

Does legislation influence or limit the provision or enforcement of warranties in your jurisdictions (e.g., up-front warranties)? The Delaware General Corp. Law in Delaware, for example, a widespread corporate formation law, explicitly allows a Delaware Corp. to offer warranties to its affiliates ("Downstream Warranties"), its parents ("Upstream Warranties"), or jointly owned enterprises ("Cross-Stream Warranties"), provided that the Warranty is "necessary or convenient" for the performance of the Company's activities.

Assertibility of warranties may also be restricted by German government and state frauds. Pursuant to Rule 548 of the United States Insolvency Code (11 USC 548), a judgment in the event of insolvency may suspend the granting of a guarantee or interest by the obligor as a deceptive assignment if the granting was made within two years prior to the start of the insolvency proceedings and the judgment is that the granting was a genuine or design breach of trust.

Furthermore, warranties and sureties can also be waived outside insolvency under similar state deceptive transfer regulations. In the absence of any income from the loan guaranteed by a guarantee holder, a guarantee may be contested before the insolvency tribunal as a constructively deceptive transfer because the guarantee holder has not received a reasonably equal value in return for his guarantee.

As regards subsequent guarantee transactions, the court has normally ruled that there is no such thing as a deceptive conveyance, since it is assumed that the guarantee benefits from the loan income obtained by its affiliate. Upfront and cross-stream warranties, however, are more susceptible to litigation because it is more difficult to prove that the guarantee has obtained a reasonably equal value and there is contradictory case law there.

Describe the most commonly used ways to structure the priorities of your liabilities and collateral. It may also be agreed by contract that a lender or a group of lenders shall treat its right to receive payments for the loan commitments as junior ("junior ranking"). A way to achieve submission to payments is to incorporate in the loan documentation clauses that identify the liability as junior, if any, and specify the conditions for submission.

In cases where both groups of lenders own interests in the debtor's property and wish to subordinate the pledge as well as the payments (e.g. first liens and second mortgage loan facilities), the lenders usually negotiated and concluded a seperate interim loan arrangement in which the conditions of the subsidiary are set out in detail.

Creditors of subsidiaries draw on the subsidiary's financial resources and receive full payments in the case of bankruptcy before the holding becomes due. Inasmuch as the holding holder of the mother entity must use the value of the holding of the mother entity in the operational affiliate for reimbursement and has no immediate access to the property of the affiliate, the indebtedness at the mother entity' scale is structural subordinate to all liabilities at the affiliate entity scale (including all uncovered liabilities).

Are there any tax, stamping tax or other charges to be paid when a loan, surety or interest is granted or enforced? U.S. and New York State laws generally do not levy any tax or other charge in relation to the grant of a loan or the provision of a surety or warranty.

The applications necessary to complete the lender's right of collateral (e.g. UCC-1 financial statements applications, applications to the US Copyright Office or to the US Patent and Trademark Office to complete the US IP and State Mortgages applications), however, usually involve tolls. Some states ( e.g. Florida) may impose a documentation duty on a borrower's registration in a loan documentation, in accordance with local laws, in supplement to the registration charges.

Limitations Are there limitations on lending by or the provision of collateral or guarantee to non-resident lenders? In general, no, overseas lenders (with the exception of lenders in legal systems that are subject to broader U.S. business sanctions) can grant credit and keep collateral and warranties in the same way as U.S. residents.

Creditors in sectors in which the assignment of an asset to non-US individuals is restricted by regulation (e.g. defense or commodities sectors in which the assignment of certain asset values requires the consent of the Committee on Foreign Investments in the United States) may, however, be restricted from granting a lien to a non-US creditor.

Is there any control on currency that restricts payment to a non-resident creditor under a securities instrument, bond or loan contract? This is not a general issue, although U.S. anti-terror law or other commercial penalties may ban payment to lenders in certain overseas jurisdiction. Collateral arrangements Is it possible to establish a collateral right over all the company's financial instruments?

Assuming so, would a lump-sum collateral arrangement be sufficient or is a lump-sum collateral arrangement necessary for each kind of assets? In general, a collateral right can be established for almost any kind of assets (subject to certain legal or regulative exceptions). Legislation that applies to the seizure, improvement and assertion of a collateral right varies according to the nature of the assets and any specific regulation that applies to the borrowers.

Commitment and improvement of interests in most kinds of private properties is regulated by Art. 9 of the Uniform Code of Commerce, a standard law adopted in each State (with significant differences between States). In general,'personal property' comprises material goods, bank account balances, general intangible assets and entitlements arising from trade diseases.

In the case of an asset referred to in paragraph 9, a unique surety arrangement may be used to provide a surety of all the borrower's interests in that asset, together with the ownership interest that has been obtained. Guarantee agreements must: be in written form, certified and contain a satisfactory specification of the securities. Demands for an adequate characterisation in the safety arrangement differ from those for an adequate characterisation in a UCC-1 application.

Under the assumption that a value has been given and that the obligor has interests in the securities, the conclusion of a pledge in writing that meets the above criteria is enough to establish a pledge that is assertible against the obligor. To ensure that the lien can be enforced against third country holders in insolvency proceedings or other third countries with concurrent pledges in the property of the Mortgagor outside the insolvency, the Mortgagor and the Lenders must take certain incremental measures to improve the lien.

In the case of asset values within the meaning of 9 HGB, perfecting certain asset values can generally be accomplished by means of a corresponding UCC 1 financial report. Certain asset values, however, can only be perfect through special measures (e.g. acquisition of control). Furthermore, the interests in certain collateral items may be enhanced by more than one technique and the technique selected may cause one collateral taker to take precedence over another.

Collateral rights in immovable properties are subject to inconsistent state immovable properties legislation. Furthermore, the improvement of interests in certain kinds of personally owned properties is expressly prohibited by the Standard ized Commercial Code and is subject to other Federal or State securities legislation, which includes without limitation legislation on aircrafts and related properties, shipping, rail transportation and automobiles.

Furthermore, the improvement of IP interests is to some extent regulated by Swiss legislation. What are the procedures for disclosing collateral on the most commonly used types of asset? As a rule, a collateral right is released either by a letter of intent between the borrowers and the collateral takers or, if the loan documents so provide, by an automatic transfer if the corresponding terms and condition are met.

Furthermore, there are regulations of the Uniform Commercial Code on the releasing of securities in certain circumstances. Furthermore, a right of lien is usually related to the revenue from the disposal of securities. Normally, the surety arrangement contains a section that describes the process for documentation of the full or part release of the secured party's interests and requires the creditor (or, in the case of a syndicate transaction, the guarantor) to provide a letter of approval for the full amount of the borrower's loan obligation.

Certain collateral arrangements require the automated discharge of collateral rights upon full repayment of the borrower's loan obligation, although even in such cases the lenders usually choose to record the discharge of the collateral rights in the form of a letter, as purchasers and prospective lenders usually require proof of discharge in the form of a letter.

Releasing a collateral right is often recorded in a paysoff Letter that is issued at the moment of releasing it. Once the lien to be discharged has been refined by the submission of UCC-1 financial reports, UCC-3s are submitted for approval to end the pending UCC-1s. The securitised transferable assets are surrendered by the collateral taker to the lender in the case of perfect ownership (e.g. for securitised transferable assets that have been perfect by control).

Proceedings for the termination of a title to immovable properties vary from country to country, but usually involve the submission of a satisfactory financial situation certificate by the creditor to the debtor and the submission of a copy to the appropriate agency. As a rule, the notifying party will also conclude discrete clearance arrangements with the US Copyright and Trademark Offices in the case of rights to ownership of IPRs, which may be submitted to the US Copyright and Trademark Offices.

Properties Can collateral be provided for properties? And if so, what are the most commonly used securities for properties and what is the process? Yes, collateral can be provided over most types of properties, as well as part ownership (e.g. leasehold). Collateral rights in immovable properties are created and enforced in accordance with state laws and differ considerably from state to state.

In most cases, the lien is provided by the signature and recognition of a debenture bond and a hypothec which describe the ownership in a sufficiently detailed manner. To improve his right of lien, the creditor must register the mortgages with the land registry. Machines and plants Can securities be provided for machines and plants?

And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, machines and plants usually come within the ambit of Art. 9 of the Single Commercial Code and the lien can usually be perfect by submitting a UCC-1 financial statement. However, the UCC-1 financial statements are not a complete set of documents.

Claims Can collateral be provided for claims? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, the establishment of a lien on most claims comes within the ambit of Art. 9 of the Uniform Commercial Code.

As a rule, a right of subrogation is perfect by submitting a UCC-1 treasury sheet. Available-for-sale securities Can collateral be provided for existing securities? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, the establishment and improvement of a collateral right in respect of derivative contracts falls within the area of application of the Uniform Commercial Code.

How a collateral right in a derivative is perfected varies depending on the nature of the derivative. Frequent ways to perfection a given financing tool are the conclusion of a Memorandum of Understanding, the submission of a UCC-1 and the adoption of the tool. Is it possible to provide collateral in the form of liquid assets? And if so, what are the most commonly used types of collateral for this kind of ownership and what is the process?

Yes, the establishment and improvement of a right of collateral for deposits is regulated in Art. 9 of the Uniform Commercial Code. An interest in a deposits holding contract is further enhanced by a check normally carried out by the collateral taker, the debtor and the custodian which executes a triple deposits holding contract.

IP Can collateral be provided on IP? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, in the United States, protection of intelectual properties can be provided. Best practices for most lenders include submitting UCC-1 files to perfection in IP protection as well as filing corresponding applications with the US Copyright Office or the US Patent and Trademark Office, as the case may be.

Special consideration should be given to the assessment of regulatory questions related to the provision of IPR safeguards in the case of operations where IPR is an important part of the borrower's transaction and an integral part of the IPR book. What are the joint enforceability triggers for credits, safeguards and surety bonds?

As a rule, the terms and under which the creditor (or, in the case of a revolving loan, the management agents on the creditors' behalf) may exercise its right under the loan documentation are set out in the loan contract and are described as "events of default". The following are some of the common late events: the borrower's delay in making the requested payment; the borrower's violation of an obligation in the loan documentation; the significant imprecision of a description or guarantee in the loan documentation; the initiation of bankruptcy proceedings against the borrowers or sureties; the borrower's or sureties' delay in payment of other debts; a legally enforceable judgement against the borrowers above a certain limit; problems with the effectiveness of the lender's right to collateral.

Is there a set of special rules that lenders must meet? In case of delay, the creditor or management agency that acts on behalf of the required creditors is usually authorised to expedite the due date of the loan. As regards his interest in the securities, the chargee may either pursue a court enforcement of the securities or pursue "self-help" redress under the Uniform Commercial Code, such as the sale of securities held by the chargee.

In general, the "automatic stay" rules of the US Bankkruptcy Code stipulate that, if the debtor has applied for insolvency cover, the debtor must obtain the approval of the insolvency tribunal before lodging an appeal against the debtor or the securities. An investor with a current, perfect lien has precedence over uncollateralised investors in the amount of the value of the lien.

When there are several secured lenders with a charge over the same assets, the pledgee lender usually has precedence.