WHAT WOULD YOU DO? to monetize the collateral in a distressed situation. For example, the bank’s view toward an orderly liquidation strategy, which will eliminate the going concern sale prospects of the business in favor of pursuing inventory liquidation sales and accelerating the collection of accounts receivable, will likely have a negative impact on the value of the term lender’s intellectual property collateral. In an effort to minimize the potential for such disputes, the terms of the Bank’s intellectual property license may need to be negotiated to both afford Overadvance Bank with the ability to dispose of branded inventory in accordance with its secured party sale rights, but at the same time offer reasonable limitations on the intellectual property license that can address the term lender’s concern over the deleterious impact a liquidation sale can have on the value of intellectual property. As such, the key for the bank is to ensure the license provides the bank with sufficient flexibility given the nature of the ABL Collateral and the likely potential exit strategies. The Chief Credit Officer then turns her attention to Wendy’s request that the bank limit the ABL Collateral to only inventory and receivables. The Chief Credit Officers knows from experience that, even in a split collateral intercreditor arrangement, the ABL Collateral typically also includes certain related assets and ancillary rights. The ABL Collateral might also include (a) “instruments,” “chattel paper,” “letter-of-credit rights,” “supporting obligations,” “general intangibles,” and “payment intangibles” that, in each case, relate to, evidence or govern receivables, inventory or other ABL Collateral, (b) documents of title related to inventory, (c) “deposit accounts” and “investment accounts” that will receive proceeds or payments of receivables or inventory, (d) contracts that govern or evidence receivables or inventory, (e) guaranties and supporting obligations in respect of receivables, inventory or other ABL Collateral and (e) books and records evidencing or related to any other ABL Collateral.
collect from an account debtor, the working capital lender might want to assert whatever contract rights the borrower has against that account debtor. For these reasons, the Chief Credit Officer will require that the ABL Collateral include the related assets and ancillary rights generally associated with inventory and receivables. We hope you enjoyed the column and, of course, are always interested in your feedback. As such, if you have any scenarios you would like to see discussed in a future column, please let us know at nmaduike@otterbourg.com or mregina@otterbourg.com.
The Chief Credit Officer then turns her attention to Wendy’s request that the bank limit the ABL Collateral to only inventory and receivables. The Chief Credit Officers knows from experience that, even in a split collateral intercreditor arrangement, the ABL Collateral typically also includes certain related assets and ancillary rights.
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The purpose of these related assets and ancillary rights is to facilitate efforts by the working capital lender to realize upon the inventory and receivables in the event of a liquidation or lien enforcement action. For example, if the working capital lender is required to bring suit to
Nneoma Maduike is a partner in the Banking and Finance Department of Otterbourg P.C. and co-chair of Otterbourg P.C.’s Lender Finance practice. She represents an array of specialty finance companies, private debt funds, insurance companies, and private equity investors in connection with various finance transactions, including senior and senior-stretch loans, second lien loans, mezzanine financing, as well as other financerelated transactions. Maduike also represents institutional lenders and various public and private companies on structuring and documentation of loan transactions, including asset-based, cash flow and structured finance transactions, as well as portfolio acquisitions and dispositions.
Michael G. Regina is an associate in Otterbourg’s Banking and Finance Department. He represents banks, commercial finance companies, and other institutional lenders in connection with the structuring and documentation of loan transactions, including asset-based loans and term loans, as well as portfolio acquisitions and dispositions. He has experience with syndicated and single lender transactions, as well as multicurrency and cross-border transactions spanning several industries that include energy, beauty, agricultural, technology and retail sectors.