Structuring Pledge Agreements for Equity Interests in Partnerships and LLCs to Maximize Protection for Lenders

Key Provisions for the Security Agreement and the Borrower's Operating Agreement, UCC Requirements

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


Conducted on Thursday, February 28, 2019

Recorded event now available

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Program Materials

This CLE webinar will prepare lenders' counsel to draft pledge and other agreements that establish a security interest in partnership and LLC interests. The panel will outline corresponding provisions that should be included in the borrower's operating or partnership agreement to maximize protection for the lender, and discuss the application of UCC Articles 8 and 9 to the perfection and priority of the security interest.

Description

Equity interests in LLC and partnership interests are a common form of collateral in many secured finance transactions, particularly mezzanine financing. The security agreement and related documents are fundamental in establishing a security interest in an LLC or partnership interest.

Representations, warranties and covenants in the pledge and security agreement are often different than standard provisions for other collateral. The agreement must also address the rights being pledged, including economic, voting and management.

The UCC provides two distinct paths to perfect the lender's security interest: filing a financing statement under Article 9 or taking control of the interest under the opt-in provisions of Article 8. Counsel should understand the advantages and disadvantages of each.

Listen as our authoritative panel outlines best practices for drafting security agreements and making corresponding amendments to the borrower's operating agreement that maximize protection for the lender. The panel will also discuss UCC Article 9 and Article 8 requirements for the perfection and priority of a security interest in a member or partnership interest. The discussion will include amendments to UCC Sections 9-406 and 9-408 promulgated in 2018 by the American Law Institute and the Uniform Law Commission.

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Outline

  1. Overview of UCC Articles 8 and 9 requirements
  2. Drafting the security agreement
  3. Recommended amendments to the LLC operating agreement or partnership agreement
  4. Common pitfalls and strategies to best protect the lender

Benefits

The panel will review these and other key issues:

  • Why is the UCC Article 8 opt-in and perfection by "control" preferable to perfection by the filing of a financing statement under Article 9?
  • What steps should the lender take to ensure the borrower cannot opt out of Article 8?
  • What are the key provisions to include in the borrower's operating agreement or partnership agreement to facilitate realization on the collateral?
  • To what extent may the lender use the operating or partnership agreement to prevent the borrower from commencing a bankruptcy case to block the lender's enforcement?

Faculty

Johnson, Curtis
Curtis A. Johnson

Partner
McCarter & English

Mr. Johnson advises clients with respect to complex financings and other business and capital transactions,...  |  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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