USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
behalf of the lenders. There is no US law require - ment that security interest be granted directly to each lender individually nor is there any require - ment that the collateral agent be licensed or regulated in the taking or holding of collateral. If a loan is assigned by a lender (assignor) to a new lender (assignee), typically pursuant to an assumption and an assumption agreement attached to the credit agreement, the assignee will purchase and assume all of the assignor’s rights and obligations under the credit docu - ments, including all rights of the assignor as a secured party in the collateral. No additional steps to re-grant or re-perfect liens would be needed. 6. Enforcement 6.1 Enforcement of Collateral by Non- Bank Secured Lenders Remedies are available for lenders with a valid security interest immediately upon the occur - rence of a default or an event of default on the secured obligations, subject to any contractual agreements to the contrary and application of the “automatic stay” in the event that the grantor is subject to a bankruptcy proceeding. The defini - tive documentation under private credit transac - tions usually rigorously defines what constitutes a “default” or “event of default” (or like term) after which the secured party may exercise remedies against the collateral. Although creditors that are secured parties generally have the option of judicial enforcement, out-of-court “self-help” options are available under the UCC, which are cheaper, faster and therefore much more com - mon than resorting to judicial remedies. Among other “self-help” remedies, a secured party may:
• commence collection activities with respect to deposit accounts, receivables or other
rights to payment; • repossess; and/or
• sell collateral and exercise rights of set-off. Any exercise of remedies or enforcement by a secured party is required to avoid a breach of the peace and in general must be commer - cially reasonable. The UCC also requires various notices in connection with the exercise of certain remedies such as sales of collateral or reten - tion of collateral in full satisfaction of the debt, but market practice has also imposed various contractual limits (usually contained in the appli - cable collateral agreement) on the enforcement of security without additional notices or grace periods. Private credit transactions commonly include an equity pledge of the borrower and its subsidi - aries, and if an out-of-court foreclosure sale is contemplated, a sale of some or all of the equity of the company group is an attractive option. Before, or in connection with the enforcement, the secured party may wish to exercise voting or other rights inuring to the holders of the equity interests, including replacing the board of direc - tors or other governing body of the borrower, but any such voting or proxy rights must be specifi - cally negotiated in the security agreement and may be subject to limitations under the borrow - er’s organisational documents. Even so, secured lenders may not have an opportunity to exercise “self-help” remedies before the debtor seeks the protection of the US Bankruptcy Code. Lenders and a debtor may alternatively reach a consensual out-of-court agreement whereby the debtor will peacefully transfer collateral to the lender in exchange for
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