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Opinion Letters in Commercial Lending Transactions

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gDrafting and Negotiating UCC, Securitization, and

Entity and Contract OpinionsA Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:Steven O. Weise, Partner, Proskauer Rose, Los Angeles

Christine Gould Hamm, Partner, Husch Blackwell Sanders, Kansas City, Mo.Jason Arbuck Partner Cassels Brock & Blackwell Toronto Canada

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Jason Arbuck, Partner, Cassels Brock & Blackwell, Toronto, Canada

Thursday, June 17, 2010

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O i i  l tt  i  Opinion letters in commercial lending commercial lending transactions

Christine HammChristine HammSteve Weise

4

Overview

Lay of the landLay of the land Common opinions in commercial lending 

financing transactionsfinancing transactions Entity and contract opinions

Form part of basis for UCC opinions Form part of basis for UCC opinions UCC opinions Real estate financing opinions Real estate financing opinions Securitization opinions

5

Role of customary practicep

Basis for:Basis for: Diligence Meaning of words Meaning of words

ALI Restatement of Law Governing LawyersLawyers

National Customary Practice Statement

6

Sources of opinion letter ‘law’ and customary practice customary practice 

ABA reportsABA reports TriBar reports State Bar reports State Bar reports ACREL reports S & P guidelines S & P guidelines Many ABA, TriBar and other reports 

available online (for free!):available online (for free!):http://www.abanet.org/buslaw/tribar/home.shtml

7

Entity opinionsp

Sources:Sources: TriBar II TriBar LLC Reports TriBar LLC Reports

8

Entity opinionsp

ExistenceExistence Good standing Not all states Not all states

Authorization No breach of contracts No breach of contracts No litigation statement

9

Contract opinionsp

Sources:Sources: ABA Guidelines ABA Principles ABA Principles TriBar II TriBar Remedies Report TriBar Remedies Report

10

Contract opinionsp

Remedies opinion ‐ scopeRemedies opinion  scope Enforceability Does not include UCC opinions  such  Does not include UCC opinions, such 

as attachment of security interest

11

Contracts opinionsp

Exceptions to remedies opinionExceptions to remedies opinion Bankruptcy and equitable principles

Specific exceptions that often come up in  Specific exceptions that often come up in lending transactions Prepayment premiums Prepayment premiums Yield maintenance Late charges Late charges

12

UCC opinionsp

SourcesSources TriBar Article 9 Report State Bar reports State Bar reports

Coming TriBar report on secondary sales of securities (UCC Article 8 issues)of securities (UCC Article 8 issues)

13

UCC opinions – attachmentp

Based on contract law opinionsBased on contract law opinions Authority Existence of security agreement as a  Existence of security agreement as a 

‘contract’ Is collateral and transaction subject to  Is collateral and transaction subject to 

UCC? UCC scope statement UCC scope statement

14

UCC opinions – attachmentp

Authentication of security agreementAuthentication of security agreement ‘Grant’ language

Assume rights in collateral Assume rights in collateral Transferability of collateral

Assume value? Assume value? Description of collateral Regulated debtors Regulated debtors Due diligence

15

UCC opinions – perfection by filingp p g

Opinion on choice of law?Opinion on choice of law? Diligence on type of entity Assume for debtors that are not  Assume for debtors that are not 

registered organizations OK to opine on non licensed  OK to opine on non‐licensed 

jurisdiction if have ‘competence’ on particular issueparticular issue

Due diligence: determining state of f ti   t

16

formation, etc.

UCC opinions – perfection by filingp p g

Debtor nameDebtor name Due diligence: organizational 

documentsdocuments Collateral description Proper filing and tender of fee Proper filing and tender of fee

17

Perfection by possessionp

Status of agent or bailee as such?Status of agent or bailee as such? Determining actual physical 

possession by secured party  agent  or possession by secured party, agent, or bailee

Due diligence: acknowledgement  Due diligence: acknowledgement from bailee

18

Perfection by control

Secured party’s control?Secured party s control? Effect of debtor’s right to given 

entitlement orders or instructionsentitlement orders or instructions Due diligence: review of control 

agreementagreement

19

UCC opinions – priority ‐ filingp p g

Filing priority?Filing priority? Not common

Review of UCC report Review of UCC report Due diligence: accuracy of search 

report?report?

20

UCC opinions – priority: investment property/notesproperty/notes

Control priorityControl priority Possession priority Protected purchaser priority Protected purchaser priority Holder‐in‐due‐course priority Due diligence: Due diligence: Assumptions re notice Assumptions re possession   Assumptions re possession, 

endorsement and the like

21

UCC remedies

Waivers of debtor rightsWaivers of debtor rights Notice provisions Foreclosure procedures Foreclosure procedures ‘Not manifestly unreasonable’ provisions

22

Real estate opinionsp

Form of deed of trust or mortgage Form of deed of trust or mortgage sufficient

No opinions on title or priority No opinions on title or priority Practical realization exception Sources: Sources: ACREL reports State bar reports State bar reports

23

Securitization opinionsp

Reasoned opinionsp True sale opinion

Transfers of mortgage notes N lid ti   i i Non‐consolidation opinion

Use of SPE as single‐asset real estate borrowerborrower

Sources: S & P guidelines Older TriBar report

24

O i i  l tt  i  Opinion letters in commercial lending commercial lending transactions

Christine HammChristine HammSteve Weise

25

Taking Security in an Igloo —Canadian Financing gTransaction Opinion Issues for US Practitioners

Jason Arbuck, PartnerCassels Brock & Blackwell LLPToronto Canada

© 2010 Cassels Brock

Toronto, [email protected]: 416 860 6889

Introduction to Canada

• 9 common law governed provinces• 9 common law governed provinces —similar to the US1 i il d d i Q éb• 1 civil code governed province — Québec

• Québec is different and takes more time —start early

• Property rights are a provincial matter, not p y g p ,federal

© 2010 Cassels Brock 27

Opinion letters

• Structure is similar to US based opinion• Structure is similar to US-based opinion lettersWh t i “ k t” d h t i t “ k t” i• What is “market” and what is not “market” is fairly well established

• Sources for customary practice are “Estey,” the “Green Book” and TOROG

© 2010 Cassels Brock 28

Corporate Opinions

• Corporations can be formed at the• Corporations can be formed at the provincial level or federal levelA l i f d l• Any lawyer can opine on federal corporations

• Provincial corporations require opinion from jurisdiction of formation

© 2010 Cassels Brock 29

Applicable Canadian Legislation

• No uniform code• No uniform code • Common law provinces each have a

“PPSA”“PPSA” • PPSAs are modeled on Article 9 of the

UCC• Many Provinces now have a Securities y

Transfer Act or “STA” which is modeled on Article 8 of the UCC

© 2010 Cassels Brock 30

Creation of a Security Interest —Common Law ProvincesCommon Law Provinces

• Requirements for “creation” are• Requirements for creation are substantially similar to the USUS d ft d it t il• US drafted security agreements are easily “Canadianized”

• Canadianization — consider statute references, judgement currency language, usury laws, annualized rates, no penalties on default

© 2010 Cassels Brock 31

• Governing law — use appropriate province

Creation of a Security Interest —QuébecQuébec

• Typically security in Québec is drafted by• Typically, security in Québec is drafted by Québec counsel“H th ” t b i d b f• “Hypothec” must be signed before registration

• Need to include a dollar amount and full collateral description

© 2010 Cassels Brock 32

Perfection of a Security Interest —Registration SystemsRegistration Systems

• Registration systems in each province• Registration systems in each province • Filing is electronic and instantaneous• Must register in the appropriate provinces

— depends on where the collateral is situated and where the offices of the debtor are situated

© 2010 Cassels Brock 33

Perfection of a Security Interest —Where to RegisterWhere to Register

• Must register and obtain a perfection• Must register and obtain a perfection opinion from local counsel in each province in which a debtorin which a debtor i) has tangible collateral (for tangible collateral),

andand ii) has its “Chief Executive Office” (for intangible

collateral and mobile goods)collateral and mobile goods)• If the debtor has major offices in more than

one jurisdiction then register and obtain

© 2010 Cassels Brock 34

one jurisdiction, then register and obtain opinions from each province

Perfection of a Security Interest —Deposit AccountsDeposit Accounts

• Perfect by registration not control• Perfect by registration, not control• Control agreements not required, but often

d b US l dused by US lenders

© 2010 Cassels Brock 35

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