As professionals in the legal industry, many of you are likely familiar with the structure of most subscription facilities which are secured by the right to call capital and receive capital contributions from the fund’s investors. The deposit account used in this instance, often referred to as the collateral account, holds significant weight. Cadwalader, Wickersham & Taft LLP dives into this topic, shedding light on how Article 9 of the UCC provides two methods for perfecting a lender’s security interest in such an account.
These two methods are fundamentally based on the principle of control exercised over the deposit account or adhering to a control agreement. The first implies that the lender maintains direct control over the collateral account, while the second involves a tripartite agreement between the lender, borrower, and the bank.
With imminent changes coming in August 2023, it is crucial for borrowers and lenders to understand these distinctions and consider how they may need to adjust to maintain compliance and ensure optimal structuring of these facilities.
In the wake of these developments, legal teams, especially those managing corporate debt facilities, need to stay abreast of these shifting dynamics and review their collateral arrangements. It may necessitate revising collateral control agreements or repositioning the collateral account under direct control of the lender, to name a few potential actions.
To learn more about these pivotal changes set to impact lender’s security interest, read the full article by Cadwalader, Wickersham & Taft LLP here.