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Subscription Finance and Commingled Collateral Accounts: Avoiding UCC Perfection Issues, Safeguarding Collateral

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

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Conducted on Thursday, April 18, 2024

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This CLE webinar will discuss why subscription facility lenders may require credit parties to maintain single-purpose collateral accounts that are contractually limited to hold only capital contributions versus a commingled account that serves many purposes. The panel will address challenges that commingled collateral accounts present for subscription facility lenders under the UCC and solutions for avoiding potential problems.


Subscription facilities are effectively a form of "asset-based lending," where the ability to borrow is determined principally by reference to the borrowing base value of the unfunded commitments of certain eligible investors. A typical collateral structure comprises security over: (1) the unfunded capital commitments of the fund's investors; (2) the right to make capital calls to such investors and receive proceeds of such capital calls; (3) the bank accounts into which the capital contributions are funded; and (4) certain rights related to the foregoing (including the right to enforce against such investors) pursuant to the documentation evidencing such rights (including subscription agreements of the investors and organizational documents of the fund).

Collateral accounts are a key element of the security package for subscription facilities because they allow for the subscription lender exercising remedies to call capital from investors and direct them to fund into an account they solely control. Under the UCC, a secured creditor's perfected security interest in collateral continues and is automatically perfected in the proceeds of such collateral if that collateral is disposed of by the pledgor without authorization from the secured creditor.

While this protection under the UCC is beneficial to the secured creditor, it can create uncertainty if cash credited to the collateral account consists of proceeds from other sources. To avoid uncertainty, subscription facility lenders may include covenants in loan documentation requiring credit parties to only deposit capital contributions in their collateral account.

Including these covenants in loan documents will avoid the potential reliance of a subscription facility lender on funds that may be subject to a competing creditor's valid claim. Also, these terms may avoid the potential for unanticipated delays and litigation during the lifecycle of the loan.

Listen as our authoritative panel discusses the interplay of the UCC's equitable principles as they apply to a subscription facility lender's interest in collateral accounts and best practices to ensure a lender's security interest is protected.



  1. Overview: subscription facilities and collateral accounts
  2. UCC perfection issues with collateral accounts
  3. Single-purpose collateral accounts
  4. Commingled collateral accounts
    1. Allocation is uncertain
    2. Lowest intermediate balance rule
  5. Limiting source of funds credited to collateral accounts
    1. Concerns regarding sanctioned investors depositing capital contributions into the collateral account
  6. Other relevant concepts relating to claims in cash proceeds
  7. Avoiding uncertainty with loan covenants and documentation
  8. Key takeaways


The panel will address these and other key issues:

  • Why do subscription facility lenders heavily depend on collateral accounts as a key element of the security package?
  • What risks do commingled collateral accounts present for a lender under the UCC?
  • How can secured creditors avoid the uncertainty that can occur when funds are commingled in a collateral account?


Edelboim, Leah
Leah Edelboim

Cadwalader, Wickersham & Taft

Ms. Edelboim has more than a decade of experience in fund finance transactions, having worked on some of the largest...  |  Read More

Kerfoot, Matthew
Matthew Kerfoot

Proskauer Rose

Mr. Kerfoot focuses principally on fund finance and structured finance transactions. He has held leadership positions...  |  Read More

Shultz, Brent
Brent Shultz

Haynes and Boone

Mr. Shultz has successfully negotiated and closed billions of dollars of complex debt financings for his clients....  |  Read More

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