USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
Guarantees are typically joint and several obli- gations of the borrower/issuer and the guar- antor, and are guarantees of payment and not simply collection – in other words, the financing source is not required to exhaust its remedies against the borrower/issuer before it may pro- ceed against the guarantor. Guarantors agree in the finance documentation to waive common law and statutory defences, and also agree that their liability will be reinstated if payment to the financing sources is recovered by a bankruptcy estate. 6.2 Restrictions The USA does not have general restrictions on upstream guarantees, “financial assistance” or “corporate benefit” tests; see 5.6 Other Restric- tions for restrictions on fraudulent conveyance. In multi-jurisdictional acquisition financing trans- actions, restrictions in other jurisdictions can become important for guarantees and security provided for the benefit of NY law-governed debt securities, particularly in disclosing the restrictions to potential investors in the offering documentation. 6.3 Requirement for Guarantee Fees The USA does not have a requirement for guar- antee fees. 7. Lender Liability 7.1 Equitable Subordination Rules The US federal bankruptcy code permits a court to order a claim to be subordinated to other claims under the principles of equitable subordi- nation. Cases of equitable subordination against lenders or other creditors are rare because they require findings that:
• the creditor committed fraud or other inequi- table conduct that resulted in harm to other claimants or an unfair advantage; and • ordering equitable subordination would not be contrary to the principles of US bank- ruptcy law. Inequitable conduct is more commonly found in cases involving insiders or fiduciaries because of the duties they owe to the debtor. A creditor could be treated like an insider if it exercised The USA does not have general claw-back rules, but lenders should be aware of fraudulent conveyance (see 5.6 Other Restrictions ) and equitable subordination rules (see 7.1 Equita- ble Subordination Rules ), as well as anti-tying, the Financial Crimes Enforcement Network (Fin- CEN) and margin rules, as discussed immedi- ately below. Anti-Tying The US Bank Holding Company Act Amend- ments of 1970 prohibit a bank from tying the extension of credit or any other product or ser- vice to other products or services offered by the bank or its affiliates. The anti-tying rules do not apply if the bank’s client is not a US person. In US acquisition finance that includes a securi- ties offering, the underwriter of the securities is typically the broker-dealer affiliate of the bank that has provided committed financing. If the bank were to require its client to engage such affiliate as an underwriter as a condition to pro- viding the committed financing, the anti-tying rules could be implicated. However, if the bank’s client voluntarily agrees to engage such an affili- ate as underwriter, and such engagement is not a condition precedent to providing the commit- control over the debtor. 7.2 Claw-Back Risk
539 CHAMBERS.COM
Powered by FlippingBook