This Legal Update explores why, in order for an underlying loan to be included in a warehouse facility’s borrowing base, the underlying loan must be eligible to be sold and transferred to the facility’s SPV borrower, the grant of a security interest in the underlying loan in favor of the facility’s agent must be permitted, and any transfer to the facility’s agent (or a third-party buyer) resulting from a foreclosure must be permitted.

Examples of Eligibility Criteria – “Eligible to be Sold” & Transferability Restrictions:

• Such Collateral Obligation is capable of being transferred to and owned by the Borrower (whether directly or by means of a security entitlement) and of being pledged, assigned or novated by the owner thereof or of an interest therein, subject to customary qualifications for instruments similar to such Collateral Obligation (i) to the Facility Agent; (ii) to any assignee of the Facility Agent permitted or contemplated under this Agreement; (iii) to any Person at any foreclosure or strict foreclosure sale or other disposition initiated by a secured creditor in furtherance of its security interest; and (iv) to commercial banks, financial institutions, offshore and other funds (in each case, including transfer permitted by operation of the UCC).
• Such Loan is eligible under its Underlying Instruments (giving effect to the provisions of UCC §§9‑406 and 9‑408) to be sold to the Borrower and to have a security interest therein granted to the Administrative Agent, as agent for the Secured Parties.

What are Lender Assignments and How Might Restrictions on Sale/Assignability Arise?

A lender assignment involves an assignor lender selling and assigning some or all of its interests in a credit facility, including its related rights and obligations, to an assignee lender, which purchases and assumes those rights and obligations and becomes a party to the facility. The...