BankBryanCave.com

Bank Bryan Cave

Lending

Main Content

Are the Assets in Custody?

March 22, 2017

Authors

Matthew D'Amico

Are the Assets in Custody?

March 22, 2017

by: Matthew D'Amico

Lender Beware: The custody assets you are lending against may not actually be held in custody.

Lenders to funds and other borrowers often extend credit based on a security interest over assets that are held in custody.  The lender is granted a security interest in the relevant custody account and all of the cash, securities and other assets therein, and then perfects the security interest by entering into a “control agreement” with the custodian.  The lender may have made two big assumptions: (1) the custodian has “custody” of the assets, and (2) upon receipt of instructions from the lender after default, the custodian can readily transfer or otherwise dispose of the relevant assets.  Upon closer examination, however, these assumptions may prove to be incorrect.

There are two broad categories of assets

Read More

Should you Buy Loans from “Peer-to-Peer” Lenders?

September 29, 2015

Authors

Dan Wheeler

Should you Buy Loans from “Peer-to-Peer” Lenders?

September 29, 2015

by: Dan Wheeler

The market views peer-to-peer lending as having great promise. And, some banks are buying these loans in earnest. Should your bank look closely at doing the same?

Since the financial crisis, a new generation of non-bank lenders has grown up to serve markets that banks either retreated from or have not been able to serve effectively.  Lending Club is the best known example.  Prosper is a company that pioneered the term “peer-to-peer” lending and originally saw its role as facilitating the loan of money from ordinary people to ordinary people.

Change happened quickly.  Now, the more fashionable name for companies in this sector is “marketplace lender.”  This term better describes the economics in which a wide array of non-bank lenders make loans in a multiplying array of asset classes and then sell those loans to professional investors.   The share of these loans sold to

Read More

Debt Collector has Burden to Prove FDCPA Exception

August 6, 2015

Authors

Jim Goldberg

Debt Collector has Burden to Prove FDCPA Exception

August 6, 2015

by: Jim Goldberg

Under the Fair Debt Collections Practices Act, a debt collector is liable to a consumer for contacting third parties in pursuit of that consumer’s debt unless the communication falls under a statutory exception. One of those exceptions covers communication with a third party for acquiring location information about the consumer.  Even then, the Act prohibits more than one such contact unless the debt collector reasonably believes that the earlier response of the third party was erroneous or incomplete and that such person now has correct or complete location information.

The first federal court of appeals to address the issue has just ruled that if sued in a case alleging illegal third-party contact, the debt collector has the duty to plead and prove the exception. To take shelter in the exception, a debt collector must expressly state in its answer to the complaint (facts permitting) that it pursued repeat contacts with

Read More

Mafia Guaranties Loan to Murder Inc.

July 28, 2015

Authors

Jerry Blanchard

Mafia Guaranties Loan to Murder Inc.

July 28, 2015

by: Jerry Blanchard

Every now and then the name of the parties in a case just sort of jumps out and grabs you. A recent decision out of Nevada involved a guaranty given by The Mafia Collection (“Mafia”) for certain loans made to Murder, Inc., LLC (“Murder”).  Murder defaulted on the loans and the secured creditors sought to foreclose on the collateral pledged by Mafia comprising some 1500 mob related artifacts.

While the foreclosure case was pending, Mafia acquired some of the secured notes that it had guaranteed. Mafia then filed a counterclaim/third-party claim against the collateral agent for the lenders, Andrew DeMaio, alleging unjust enrichment and breach of fiduciary duty. The lower court ruled in favor of the collateral agent and the secured creditors and awarded attorney fees and costs as allegedly provided for in the parties’ secured notes and security agreement.

On appeal to the Nevada Supreme Court, Mafia raised several

Read More

A $1.5 Billion (Un)Secured Loan

February 2, 2015

Authors

Brian Devling and Jeff Chavkin

A $1.5 Billion (Un)Secured Loan

February 2, 2015

by: Brian Devling and Jeff Chavkin

An opinion from the Second Circuit Court of Appeals in In re Motors Liquidation Company, relying on the Delaware Supreme Court’s answer to a certified question highlight the need to focus on the details when dealing with financing statements and terminations under Article 9 of the Uniform Commercial Code.  Because the parties in that case did not pay attention to the details, a $1.5 billion secured term loan became unsecured loan.

General Motors had two separate credit facilities led by JPMorgan Chase Bank, N.A., as agent for the different lender groups: a $300 million synthetic lease financing and a $1.5 billion secured term loan.  Two UCC-1 financing statements were filed in connection with the synthetic lease and a separate UCC-1 was filed with respect to the term loan.. All three financing statements identified JPMorgan, as agent, as the secured party.

In 2008, General Motors told its counsel on

Read More

Extending Credit to a Bank Holding Company

September 2, 2014

Authors

Jerry Blanchard

Extending Credit to a Bank Holding Company

September 2, 2014

by: Jerry Blanchard

Over the past several years reports of someone extending credit to a community bank holding company were similar to sightings of the Yeti in the Himalaya, you might hear about it but you never actually saw one. The number of bank failures and the consequent insolvency of many bank holding companies has led to a natural reluctance on the part of many lenders to provide such financing. The losses that many lenders suffered on such loans has raised some interesting questions about the loans were structured to begin with. The typical loan documentation for such a credit usually has traditionally had only a few financial covenants. The obligation to maintain well capitalized status for both the bank holding company and the subsidiary bank has been the primary focus on the assumption (not altogether incorrect) that maintaining a strong capital base cures many sins. Other covenants might address the ratio of

Read More

BBA LIBOR No Longer Exists

February 5, 2014

Authors

Brian Devling

BBA LIBOR No Longer Exists

February 5, 2014

by: Brian Devling

Commercial and consumer loans commonly accrue interest at a rate calculated in reference to LIBOR, the London Interbank Offered Rate. LIBOR was designed to be the average interest rate that leading banks in London, England would charge other banks. The British Bankers Association (BBA) administered LIBOR and many loan documents refer to BBA LIBOR. Effective February 1, 2014, the BBA no longer administers LIBOR. The Intercontinental Exchange Benchmark Administration Ltd (ICE) now has responsibility for LIBOR. The handover is part of the fallout from the recent scandal caused by banks trying to manipulate LIBOR.

Going forward any references to BBA LIBOR in your loan document templates should be updated. There is no need to refer to the entity administering LIBOR. A general reference to the London Interbank Offered Rate should suffice. Even better, many loan documents refer to LIBOR as reported by Reuters because that is where the

Read More

Losing Good Loans to Larger Banks? Try an Interest Rate Swap

February 8, 2013

Authors

Dan Wheeler

Losing Good Loans to Larger Banks? Try an Interest Rate Swap

February 8, 2013

by: Dan Wheeler

Many community banks are reluctant to consider interest rate swaps due to perceived complexity as well as accounting and regulatory burdens. But, in a record low interest rate environment, the most desirable customers almost universally demand something that is hard for community banks to deliver: a long-term, fixed interest rate. Large banks are eager to accommodate this demand and usually do so by offering such a borrower an interest rate swap that, together with the loan facility, delivers the borrower a net long-term, fixed rate obligation and the lending bank a loan with an effective variable rate.

The alternatives to using swaps are not appealing. A community bank can limit its product offerings to only variable rate loans or short-term, fixed rate loans and thereby lose many good customers to larger competitors. The bank can offer a long-term fixed rate on the loan and then (a)

Read More

Regulators Issue Statement on Lending to Creditworthy Small Businesses

February 8, 2010

Authors

Jerry Blanchard

Regulators Issue Statement on Lending to Creditworthy Small Businesses

February 8, 2010

by: Jerry Blanchard

On February 5, 2010, the federal banking regulators and the Conference of State Bank Supervisors issued an Interagency Statement on the Credit Needs of Creditworthy Small Business Borrowers.  The Statement builds upon principles set forth in the October 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts.  After noting the overall decline in loans to small businesses and the reasons for that decline the regulators suggested that lenders may have become overly cautious with respect to small business lending.  They encourage lenders to engage in prudent small business lending and that that examiners will not criticize lenders for working in prudent and constructive manner with small businesses.

The decline in small business lending has many reasons, not the least of which is that loan demand is actually down.  Lenders are also naturally cautious of lending to those businesses that are reliant solely on cash flow that has

Read More

State of the Union – TARP Money for Community Banks

January 28, 2010

Authors

Robert Klingler

State of the Union – TARP Money for Community Banks

January 28, 2010

by: Robert Klingler

In his January 27, 2010 State of the Union address, President Obama renewed his call for using some of the TARP money for community banks in an effort to drive small business lending.

So tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.

This proposal would be consistent with President Obama’s speech last October in which he stated the broad outlines of a new program to provide additional capital to community banks in an effort to spur lending to smaller business, as well as Secretary Geithner’s extension of the TARP program.

We understand that government officials have indicated that additional details on the program will be rolled out by Treasury officials in the coming days.  We have previously analyzed the known terms of

Read More
The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.