UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
5. Guarantees and Security 5.1 Assets and Forms of Security
assignments by way of security, which trans - fer the security provider’s title conditionally on release of the security or discharge of secured obligations. Pledges, creating possessory secu - rity, are rare in leveraged financings. Perfection of security interests is crucial for validity and priority over other creditors. Per - fection steps depend on the secured asset and the security interest’s nature but are generally straightforward and low-cost and include: • registration: all charges by an English compa - ny or limited liability partnership must be reg - istered at Companies House within 21 days. For certain assets, registration at specific UK asset registries, like the Land Registry for real estate, is necessary; and • notice: providing notice of the security inter - est to third-party debtors or account banks is essential, as the notice timing often deter - mines the security’s priority. For security over English real estate, specific procedural steps and regulatory conditions must be met. An overseas entity granting security over a qualifying estate in England and Wales must be registered in the register of overseas entities at UK Companies House to register a mortgage at the Land Registry. Once validly created and perfected, security under English law does not typically require ongoing maintenance. However, risks exist, such as a fixed charge being re-characterised as a floating charge if the chargee does not exercise control. Security is granted to a security trustee (or security agent) who holds the security inter - ests on trust for secured creditors, allowing new lenders to benefit without restarting hardening periods.
Under English law, taking security is a relatively straightforward process, allowing security over a wide range of asset classes through charg - es, mortgages or pledges. Commonly secured assets in sponsor-backed private credit financ - ings include shares, bank accounts and inter - company receivables, with a floating charge often granted over other company assets. The security package’s scope depends on the transaction’s nature, guided by “agreed secu - rity principles”. For instance, loans to groups with valuable intellectual property or real estate may secure these assets to enhance the lender’s position. Loan agreements typically require material sub - sidiaries to provide security and guarantees similar to those of the borrower. The material subsidiary definition is negotiable but generally includes entities representing a certain percent - age of the group’s EBITDA or assets, which is typically 5%. Holding companies of material subsidiaries are usually expected to provide share security over the material subsidiaries’ shares and any intercompany receivables they owe. In leveraged financings, a charge is common - ly granted by a chargor in favour of the lender (chargee), allocating specific assets to satisfy debt obligations. Charges can be fixed, attach - ing immediately to defined assets with the chargee exercising control, or floating, covering a fluctuating pool of assets and “crystallising” into a fixed charge upon certain events. Importantly, the title and possession of the asset remain with the chargor, unlike mortgages or
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