USA Law and Practice Contributed by: Stelios G Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins LLP
lent transfers (to the extent available under applicable law). In the case of upstream guarantees or other credit support from foreign subsidiaries in support of the indebtedness of a US debtor, deemed dividends may apply under US federal tax law. Since 2018, tax law reform has reduced the impact of upstream guaran - tees and other credit support from non-US subsidiar - ies. Notwithstanding the positive tax reform opening the door to more non-US credit support, as a general mat - ter and except on rare occasions where it is critical from a credit perspective, non-US upstream guaran - tees and credit support are often excluded outright from the guarantee and collateral package of US debt financings, primarily on cost and complexity grounds. 5.4 Restrictions on the Target Generally, the United States does not have any restric - tions on “financial assistance” that would prohibit pro - viding guarantees or security to support borrowings to finance the acquisition of a target company. However, there may be regulatory issues to consider when the guarantee or security provider is a specialised or regu - lated entity. 5.5 Other Restrictions The United States is a flexible jurisdiction from the perspective of financial assistance by the target, and no whitewash is necessary. Generally, no governmen - tal approval is required for providing guarantees or security, although exceptions exist for highly regulated entities. US law does not have a concept of “hard - ening”, but transfers, including creation or perfection of a security interest, on account of an antecedent (pre-existing) debt made within the 90 days prior to a bankruptcy filing when the debtor was insolvent, are avoidable if they permit the creditor to receive more than they would in a hypothetical liquidation under Chapter 7 of the US Bankruptcy Code. The 90-day period is extended to one year for insiders. There are a variety of statutory defences and safe harbours to preference claims. US law generally does not recognise retention of title transactions and instead will recharacterise such an
arrangement as merely the reservation of a security interest. Article 9 of the UCC broadly overrides restric - tions on assignment under contracts or applicable law that would prohibit or restrict the creation of a security interest in such asset. The extent of the over - ride depends on several factors, including the type of asset in question and whether the restriction is on the sale of the asset or only the creation of a security interest in it. 5.6 Release of Typical Forms of Security The primary method of lien release is an agreement or acknowledgment by the secured party, together with terminations of financing statements or other filings made in public records. The security agreement or loan agreement typically contains provisions setting forth the circumstances when the security interest in collateral will be released, including upon payment in full of all outstanding obligations. To the extent that a sale or disposition of collateral is permitted under the credit agreement, it is common to provide a cor - responding release of lien in such collateral. Although the lien release provisions may be drafted to occur automatically upon such repayment or disposition, it is market practice to include an agreement from the lender (or its agent) to expressly release and terminate the applicable liens, such as in a loan payoff letter (in the case of a loan repayment) or a lien release instru - ment (in the case of a disposition). In connection with the release, physical collateral of share certificates and promissory notes that were delivered to the lender will be returned to the debtor. In addition, the lender will (i) file (or authorise the filing of) UCC-3 termination state - ments with respect to all UCC-1 financing statements filed against the debtor and termination of the security interest filings made at the US Copyright Office and the United States Patent and Trademark Office, and (ii) provide notice of lien release to applicable third parties that have entered into control arrangements with the lender. If other perfection methods were undertaken in connection with such collateral (such as real estate mortgages or entry into control agreements with third parties), additional termination agreements or instru - ments may also be required.
286 CHAMBERS.COM
Powered by FlippingBook