Secured Financing of Inventory: Revolving Credit, UCC Perfection, Proceeds, Competing Liens

Recording of a 90-minute premium CLE webinar with Q&A

Conducted on Wednesday, January 22, 2020

Recorded event now available

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Course Materials

This CLE course will enable finance counsel to structure a revolving credit financing where inventory is the collateral. The panel discussion will include attachment and perfection under the UCC, ensuring a continuing interest in proceeds upon sale, and how best to establish priority over competing security interests.

Description

Lenders making asset-based loans often include a borrower's inventory as part of the borrowing base. Structured as a line of credit secured by the borrower’s existing and after-acquired inventory and other assets, the loan balance is paid down as inventory is sold and can be redrawn to finance the production or acquisition of new inventory. Counsel must draft draw and repayment procedures with care.

The secured party will want a perfected security interest that takes priority over security interests or other interests in the inventory. For a perfected security interest, there must be both creation of the security interest under a security agreement and perfection by filing a UCC financing statement, taking possession of the collateral, or some other method.

Competing liens can add complexity to the transaction. Generally, the time of filing establishes priority, but there are notable exceptions to the first to file rule, including manufacturers, other suppliers or lenders with a purchase money security interest (PMSI). Counsel may wish to identify and address competing liens in loan and intercreditor agreements.

Listen as our authoritative panel examines issues particular to the financing of inventory. The panel will discuss critical provisions that should be included in the documentation of a revolving line of credit, perfecting and maintaining a first priority security interest in inventory, and dealing with competing security interests or other interests in the collateral.

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Outline

  1. UCC treatment of inventory and other goods
  2. Documenting a revolving line of credit secured by inventory or other goods
    1. Loan agreement advance and repayment provisions
    2. Security agreement
    3. UCC financing statement
  3. UCC perfection and priority: searching and filing, possession or other methods
  4. Maintaining a security interest in proceeds
  5. Competing liens
    1. PMSI's
    2. Consigned inventory (both to and from the borrower)
    3. Landlord’s liens
    4. Warehouseman's liens
    5. Processor's liens

Benefits

The panel will review these and other critical issues:

  • What are the crucial components of a revolving line of credit when financing inventory?
  • How is a UCC security interest perfected in inventory and in proceeds after a sale?
  • What steps should counsel take to ensure priority over PMSI and other competing liens?

Faculty

Cianciotti, Anthony
Anthony C. Cianciotti
Senior Counsel
McGuireWoods

Mr. Cianciotti represents banks and other financial institutions in single-lender and syndicated commercial debt...  |  Read More

Smith, Edwin
Edwin E. Smith
Partner
Morgan, Lewis & Bockius

Mr. Smith concentrates his practice in commercial law, debt financings, structured financings, workouts, bankruptcies,...  |  Read More

Weise, Steven
Steven O. Weise
Partner
Proskauer Rose

Mr. Weise practices in all areas of commercial law and has extensive experience in financing, especially in those...  |  Read More

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