USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
edged by the grantors. Intercreditor agreements are generally held to be enforceable in line with their terms by the bankruptcy court under Sec - tion 510(a) of the US Bankruptcy Code. Inter - creditor agreements establish lenders’ relative priorities in common collateral, whether as first lien/second lien, pari passu (or equal) lien, or split lien (ie, first lien in one pool of collateral and second in rest), including enforcement or exercise of remedies with respect to the col - lateral upon default under the financing agree - ments and order of payment from proceeds of the collateral, including under 363 sale or other collateral liquidations in case of the bankruptcy of the borrower group. 5.8 Priming Liens and/or Claims Liens arising by operation of US state or federal law are wide-ranging. Liens may arise in con - nection with unpaid taxes, judgments, goods in possession of bailees, shippers or service pro - viders, landlords, depositary institutions provid - ing financial services to their customers and numerous federal statutes applicable to agricul - tural products, to name a few. In many cases the general rules of Article 9 of the UCC establish lien priority as among competing interests, but in some cases the UCC either expressly defers to another statutory priority scheme or, in the case of federal law or international treaties, the UCC priority rules are pre-empted. Parties are generally permitted to contractually alter their priority in collateral and therefore a party with a priming statutory lien may volun - tarily agree to subordinate their lien to that of a secured lender, but in many cases a secured lender avoiding a priming statutory lien is not feasible. Liens arising by operation of law are often solely applicable to specific assets and/or secure only specific obligations, so with routine diligence lenders may be comfortable that the
impact of any such actual or hypothetical liens is negligible in the context of the overall trans - action or otherwise draft covenants to mitigate the risk. 5.9 Cash Pooling and Hedging/Cash Management Obligations Under the UCC deposit accounts as original col - lateral may only be perfected by “control”. The most common method in secured lending trans - actions is a deposit account control agreement entered into between the debtor, the secured party and the depositary bank. A UCC-1 financ - ing statement is ineffective to perfect in deposit accounts as original collateral. It is therefore common for private credit transactions to either exempt deposit accounts from the perfec - tion requirement or, in some cases, partially or entirely exclude deposit accounts from the col - lateral. A depositary bank has an automatically perfected lien under the UCC over the deposit accounts of its customer and a secured lender wishing to obtain priority over the lien will need to obtain the depositary’s agreement to subordi - nate its interest. However this is moot in lending transactions where deposit accounts are either not required to be perfected or are excluded from the collateral. It is common for secured hedges and cash man - agement obligations to be secured by the same collateral that secures private credit transac - tions. These interests are most often secured under the same collateral documentation as the bank loans and these obligations are secured on a pari passu basis. 5.10 Bank Licensing In financings provided by multiple lenders in the US, the lenders typically appoint a collateral agent under the credit agreement to hold secu - rity interest in collateral granted by debtors on
340 CHAMBERS.COM
Powered by FlippingBook