USA Law and Practice Contributed by: Stelios G Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins LLP
presently owned and after-acquired assets. Certain personal property collateral is excluded from Article 9 of the UCC, and thus obtaining a valid security inter - est over those assets is more difficult. The primary methods of perfection in personal property are the filing of a UCC-1 financing statement, filings with the US Copyright Office with respect to registered copy - rights (and filings with the United States Patent and Trademark Office with respect to patents and trade marks are typical, although current law suggests that only a UCC-1 filing is sufficient for perfection in such assets), and delivery of physical share certificates and debt instruments to the secured party. Other meth - ods of perfection by “control”, for instance, by control agreements with respect to deposit accounts or secu - rities accounts, are negotiated deal points. Security interests in real property, where negotiated to be part of the collateral package, typically take the form of a security instrument such as a mortgage, a deed of trust, a trust indenture or a security deed (ie, a deed to secure debt), depending on the jurisdiction in which the property is located, with a mortgage being the typical security instrument used in New York. A blanket lien on all assets, including future assets, is possible, but is often limited by market convention to have customary exclusions. Typically, private credit transactions are supported by “all asset” or “blanket” liens (subject to agreed exceptions) over the assets of the target and its subsidiaries and an equity pledge by a holding company in the top-tier operating company. Although collateral exclusions are negotiated on a deal-by-deal basis, common exceptions to an all- asset grant include assets for which a grant of secu - rity is subject to legal restrictions or consequences, such as margin stock or “intent-to-use” trade marks; assets for which a grant or perfection is determined to be overly costly, such as mortgages for real property located in a “flood zone” or assets subject to cer - tificate of title statutes; and assets for which a grant of security would violate or impair other contractual relationships of the debtor, such as security interests in purchase money, or capital lease assets, or assets subject to securitisation financings. Often, general exclusions exist for any assets in which the grant of security would violate any laws or regulations, would require third-party (including governmental) consents
or for which the burden or cost of granting a secu - rity interest outweighs the benefits afforded thereby. Exceptions may also apply to the requirement to per - fect security interests in certain collateral, particularly if the relevant perfection action is costly or time-con - suming. Although these exceptions are common, the business context of any particular deal will dictate which exclusions are acceptable. 5.3 Downstream, Upstream and Cross- Stream Guarantees US companies are generally permitted to guarantee and secure the obligations of another group member, via upstream, downstream or cross-stream guaran - tees, subject to certain considerations and limitations. To be enforceable, the guarantee needs to comply with certain general principles such as receipt and sufficiency of consideration and, in some states, be in writing and duly executed by the guarantor to comply with the statute of frauds. However, showing direct corporate benefit to the guarantor is not neces - sary to determine sufficiency of consideration where such intercorporate guarantee benefits the group as a whole. Generally, the United States does not have any restrictions on “financial assistance” that would prohibit providing guarantees or security to support borrowings to finance the acquisition of a target com - pany. In insolvency proceedings, corporate benefit consideration is relevant to determine whether such guarantee can be challenged as a fraudulent trans - fer under the US Bankruptcy Code. Under fraudulent transfer analysis, a transfer of an interest in property of the debtor may be avoidable if (a) it is made with actual intent to defraud or deprive creditors of value or (b)(i) it is made when the debtor is insolvent or renders the debtor insolvent and (ii) the debtor receives less than its reasonably equivalent value. The company and the lenders will need to be comfort - able with the solvency of the guarantors and security providers, requiring solvency representations to this effect. In addition, the estates of an entity subject to a Chapter 11 bankruptcy proceeding would have the right to pursue any claims of the debtor, includ - ing claims for breach of fiduciary duty claims against directors and officers, such as for approving of fraudu -
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