USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
Certain personal property collateral is excluded from Article 9 of the UCC and therefore obtain - ing a valid security interest 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 copyrights; and • filings with the United States Patent and Trademark Office with respect to patents and trade marks. However, the current law suggests that only a UCC-1 financial statement filing is sufficient for perfection in these assets and physical share certificates and debt instruments must be deliv - ered to the secured party. Other methods of perfection by “control,” for instance by control agreements with respect to deposit accounts or securities 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, deed of trust, a trust indenture or a security deed (ie, a deed to secure debt), depending on the juris - diction 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 mar - ket convention to have customary exclusions. Private credit transactions are typically sup - ported by “all asset” or “blanket” liens (subject to agreed exceptions) over the assets of the tar - get 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 security 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 over - ly costly, such as mortgages for real property located in a “flood zone” or assets subject to certificate 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 security interest outweighs the benefits afforded thereby. Excep - tions may also apply to the requirement to per - fect security interests in certain collateral, par - ticularly if the relevant perfection action is costly or time-consuming. Although these exceptions are common, the business context of any par - ticular deal will dictate which exclusions are acceptable. 5.3 Downstream, Upstream and Cross- Stream Guarantees US companies are generally permitted to guar - antee and secure the obligations of another group member, via upstream, downstream or cross-stream guarantees, subject to certain con - siderations and limitations. To be enforceable, the guarantee needs to com - ply with certain general principles like receipt and sufficiency of consideration and, in some states, be in writing and duly executed by the
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