USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
• value must be given to the debtor; • the debtor must have rights in the collateral; and • in general, the debtor must execute a security agreement. The requirements for perfection depend on the type of personal property that is pledged. When negotiating which assets will comprise the collateral package for the secured creditors, foreign assets may be excluded for a number of reasons, including burden and expense, lack of materiality or as a result of tax considerations. Other assets, including those in the USA, may be excluded if regulatory or other third-party approval is required to grant a valid security interest therein. As a matter of negotiation, bor- rowers or issuers of secured debt also often seek to exclude: • certain deposit and securities accounts; • assets securing purchase money debt; • cash collateral securing letters of credit; • intent-to-use trade marks; • immaterial assets; • assets for which granting a security interest involves high taxes or other burdens; and • assets of subsidiaries that are not wholly owned. Even if some of the assets described above are excluded from the collateral package, any pro- ceeds therefrom may be included. 5.2 Form Requirements In some cases, credit agreements and inden- tures include detailed collateral provisions. More commonly, a separate collateral agreement (or a combined guarantee and collateral agreement) is executed. In any event, in US secured trans- actions the applicable collateral document will
include “granting clause” whereby the borrower or issuer and any other applicable credit par- ties will grant a security interest in the collat- eral to secure the payment of principal, interest and other monetary obligations, as well as the performance of the obligations, under the loan or bond documentation. The granting clause is important to create the security interest. In the case of secured loans, the security inter- est will be granted in favour of the lenders and agents (and issuing banks, if the credit agree- ment provides for the issuance of letters of credit) and may also extend to providers of cash management services and hedge obligations, particularly when such cash management and hedge providers are affiliates of the lenders. In the case of debt securities, the security interest will be granted in favour of the collateral agent for itself and on behalf of the bondholders. The applicable document will also set forth any col- lateral delivery requirements (for example, the delivery of certificated shares and promissory notes) and any covenants, such as an obligation to notify the collateral agent of any changes to corporate name or corporate structure. 5.3 Registration Process Common perfection techniques include the filing of a UCC financing statement, taking posses- sion of the collateral, or obtaining control of the collateral. The appropriate perfection technique depends on the nature of the property and appli- cable state law. Assets that are frequently pledged in the USA, and the corresponding actions typically taken to create and perfect a security interest therein, are set forth below.
536 CHAMBERS.COM
Powered by FlippingBook