Financing And Security Agreement

A security agreement refers to a document that gives a lender a security interest in a particular asset or property, which is mortgaged as collateral. The terms and conditions are set at the time of writing of the security contract. Security agreements are a necessary part of the business world, as lenders would never increase credit to certain businesses without them. If the borrower is late in payment, the mortgaged guarantees can be seized and sold by the lender. In addition, secured debts or bonds may also be restrictive in some jurisdictions. For example, in some jurisdictions, it is not possible to create security interests through assets to guarantee debts or obligations that do not exist at the time of creation of security interests or that may fluctuate (for example. B, revolving credit facilities). In general, priority is given to the first insured party to successfully submit a funding declaration. Subsequently, other parties could be referred to as “second party insured” or “third party.” Security interest is generally considered a protection for lenders` repayment.

In other words, if the borrower is unable to repay the liability or is otherwise late, lenders can close security assets and use the proceeds to repay the financing. Although this mechanism provides lenders with additional comfort so that no other third parties interfere with their repayment rights (particularly in cases where the facility agreement also provides for additional agreements to ensure equal treatment of all creditors, such as pari passu and cross default), it should be noted that this undertaking will not be binding on third parties and will generally not prevent the creation of non-rights. , charges or charges imposed by law or affect any legal privilege related to the priority of payments. Often, when filing a UCC-1 funding statement, the primary wish of an insured party is to have priority over other safe parties. In the absence of a funding statement, the development of a guaranteed interest rate does not necessarily give the party total priority over other third parties. If the correct perfection is not achieved, the creditor can obtain the status of “unsecured creditor” in the event of bankruptcy. Funding returns are sometimes subject to security interest prior to placement. Creditors often prefer this approach because it avoids a delay between attachment and perfection.

While the “aggressive” use of security interests for lenders described in Section II, point i), is of limited value to lenders, security interests offer you other benefits that should not be overlooked. The most important thing is that secured lenders, with respect to collateral assets, are generally both in a pre-bankruptcy scenario (seizures, which arise from execution by unsecured creditors, usually based on the rights of lenders) as well as in an insolvency scenario (in the event of a sale or liquidation in the event of an insolvency proceeding , guaranteed lenders are generally reimbursed in the first place with the proceeds of possible assets), for the financing of projects, lenders generally need a set of guarantees covering all the assets and rights of the project company (and therefore all potential sources of income for the project) or, at the very least, those necessary for the construction, commissioning , commissioning and operating the project. The guarantees granted by the sponsor are generally limited to the shares of the project company and other forms of anéquity that are paid to the company, such as shareholder loans. B, for example. Since, as part of a project financing structure, lenders should not use the sponsor or should use it only in a limited way, the guarantee granted by the sponsor is generally limited to the shares of the project company, shareholder loans to the project company and, if applicable, other forms of equity (in the broadest sense)