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Opinion Letters in Commercial Opinion Letters in Commercial Lending TransactionsDrafting and Negotiating UCC, Securitization, and Entity and Contract Opinions

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, AUGUST 23, 2011

Today’s faculty features:

Steven O. Weise, Partner, Proskauer Rose, Los Angeles

Christine Gould Hamm, Partner, Husch Blackwell, Kansas City, Mo.

Jason Arbuck, Partner, Cassels Brock & Blackwell, Toronto, Canada

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Opinion letters in pcommercial lending transactions

Christine Gould HammSteve Weise

5

OverviewOverview

•Lay of the land•Common opinions in commercial lending financing transactionsoEntity and contract opinions

-Form part of basis for UCC opinionsoUCC opinionsoReal estate financing opinionsoSecuritization opinions

6

p

Role of customary practiceRole of customary practice

B i f•Basis for:oDiligenceM i f doMeaning of words

•ALI Restatement of Law Governing LawyersLawyers

•National Customary Practice StatementStatement

•Statement on commonly accepted opinion practices

7

p p

Sources of opinion letter ‘law’ pand customary practice

•ABA reports•TriBar reports•TriBar reports•State Bar reports•ACREL reportsp•S&P guidelines•Many ABA, TriBar and other reports

il bl li (f f !)available online (for free!):http://apps.americanbar.org/buslaw/tribar/

8

Entity opinionsEntity opinions

•Sources:oTriBar IIoTriBar IIoTriBar LLC Reportsp

9

Entity opinionsEntity opinions

•Existence•Good standingGood standing

oNot all states•Authorization•No breach of contracts•No breach of contracts•No litigation statement

10

Contract opinionsContract opinions

•Sources:oABA GuidelinesoABA GuidelinesoABA PrinciplespoTriBar IIoTriBar Remedies Report

11

Contract opinionsContract opinions

•Remedies opinion - scopeoEnforceabilityoEnforceabilityoDoes not include UCC opinions, such as attachment of security interestof security interest

12

Contracts opinionsContracts opinions

•Exceptions to remedies opinionoBankruptcy and equitable principles

•Specific exceptions that often come up in lending transactionsoPrepayment premiumsoYield maintenanceoLate charges

13

UCC opinionsUCC opinions

•SourcesoTriBar Article 9 ReportpoState Bar reports

•TriBar report on secondary sales •TriBar report on secondary sales of securities (UCC Article 8 issues)

li bl i oIn part applicable to a security interest in investment property

14

UCC opinions attachmentUCC opinions – attachment

•Based on contract law opinionsoAuthorityyoExistence of security agreement as a ‘contract’as a contract

•Is collateral and transaction subject to UCC?subject to UCC?oUCC scope statement

15

UCC opinions attachmentUCC opinions – attachment

A th ti ti f it t•Authentication of security agreemento‘Grant’ languageA i ht i ll t l•Assume rights in collateraloTransferability of collateralA l ?•Assume value?

•Description of collateralR l t d d bt•Regulated debtors

•Due diligence

16

UCC opinions – perfection by p p yfilingO i i h i f l ?•Opinion on choice of law?oDiligence on type of entityA f d bt th t t oAssume for debtors that are not registered organizations

oOK to opine on non licensed oOK to opine on non-licensed jurisdiction if have ‘competence’ on particular issuep

oDue diligence: determining state of formation, etc.

17

UCC opinions – perfection by p p yfiling

•Debtor nameoDue diligence: organizational oDue diligence: organizational documentsA f i di id loAssume for individual

•Collateral descriptionCollateral description•Proper filing and tender of fee

18

Perfection by possessionPerfection by possession

•Status of agent or bailee as such?oDetermining actual physical oDetermining actual physical possession by secured party, agent or baileeagent, or bailee

oDue diligence: acknowledgement from bailee

19

Perfection by controlPerfection by control

•Secured party’s control?oEffect of debtor’s right to oEffect of debtor s right to given entitlement orders or instructions

oDue diligence: review of oDue diligence: review of control agreement

20

UCC opinions priority filingUCC opinions – priority - filing

•Filing priority?oNot commonoNot common

•Review of UCC reportpoDue diligence: accuracy of

h t?search report?

21

UCC opinions – priority: p p yinvestment property/notes

C t l i it•Control priority•Possession priority

P t t d h i it•Protected purchaser priority•Holder-in-due-course priority

D dili•Due diligence:oAssumptions re noticeA ti i oAssumptions re possession, endorsement and the like

22

UCC remediesUCC remedies

•Waivers of debtor rights•Notice provisions•Notice provisions•Foreclosure proceduresp•‘Not manifestly unreasonable’

i iprovisions

23

Real estate opinionsReal estate opinions

•Form of deed of trust or mortgage sufficient

•No opinions on title or priority•Generic exception•Generic exception•Sources:

ACR oACREL reportsoState bar reports

24

p

Securitization opinionsSecuritization opinions

R d i i•Reasoned opinions•True sale opinion

o Transfers of mortgage noteso Transfers of mortgage notes•Non-consolidation opinion

o Use of SPE as single-asset real estate gborrower

•Sources:S & P g id lio S & P guidelines

o Older TriBar report

25

Opinion letters in commercial lending transactionslending transactions

Christine Gould Hammh l k llHusch Blackwell Steve WeiseProskauer

sweise@proskauer.com

310.284.4515

26

Taking Security in an Igloo —Canadian Financing gTransaction Opinion Issues for US Practitioners

Jason Arbuck, PartnerCassels Brock & Blackwell LLPToronto Canada

© 2010 Cassels Brock

Toronto, Canadajarbuck@casselsbrock.comTel: 416 860 6889

Introduction to Canada

• 9 common law governed provinces• 9 common law governed provinces —similar to the US1 i il d d i Q éb• 1 civil code governed province — Québec

• Québec is different and takes more time —start early

• Property rights are a provincial matter, not p y g p ,federal

© 2010 Cassels Brock 28

Opinion letters

• Structure is similar to US based opinion• Structure is similar to US-based opinion lettersWh t i “ k t” d h t i t “ k t” i• What is “market” and what is not “market” is fairly well established

• Sources for customary practice are “Estey,” the “Green Book” and TOROG

© 2010 Cassels Brock 29

Corporate Opinions

• Corporations can be formed at the• Corporations can be formed at the provincial level or federal levelA l i f d l• Any lawyer can opine on federal corporations

• Provincial corporations require opinion from jurisdiction of formation

© 2010 Cassels Brock 30

Applicable Canadian Legislation

• No uniform code• No uniform code • Common law provinces each have a

“PPSA”“PPSA” • PPSAs are modeled on Article 9 of the

UCC• Nearly all Provinces now have a Securities y

Transfer Act or “STA” which is modeled on Article 8 of the UCC

© 2010 Cassels Brock 31

Creation of a Security Interest —Common Law ProvincesCommon Law Provinces

• Requirements for “creation” are• Requirements for creation are substantially similar to the USUS d ft d it t il• US drafted security agreements are easily “Canadianized”

• Canadianization — consider statute references, judgement currency language, usury laws, annualized rates, no penalties on default

© 2010 Cassels Brock 32

• Governing law — use appropriate province

Creation of a Security Interest —QuébecQuébec

• Typically security in Québec is drafted by• Typically, security in Québec is drafted by Québec counsel“H th ” t b i d b f• “Hypothec” must be signed before registration

• Need to include a dollar amount and full collateral description

© 2010 Cassels Brock 33

Perfection of a Security Interest —Registration SystemsRegistration Systems

• Registration systems in each province• Registration systems in each province • Filing is electronic and instantaneous• Must register in the appropriate provinces

— depends on where the collateral is situated and where the offices of the debtor are situated

© 2010 Cassels Brock 34

Perfection of a Security Interest —Where to RegisterWhere to Register

• Must register and obtain a perfection• Must register and obtain a perfection opinion from local counsel in each province in which a debtorin which a debtor i) has tangible collateral (for tangible collateral),

andand ii) has its “Chief Executive Office” (for intangible

collateral and mobile goods)collateral and mobile goods)• If the debtor has major offices in more than

one jurisdiction then register and obtain

© 2010 Cassels Brock 35

one jurisdiction, then register and obtain opinions from each province

Perfection of a Security Interest —Deposit AccountsDeposit Accounts

• Perfect by registration not control• Perfect by registration, not control• Control agreements not required, but often

d b US l dused by US lenders

© 2010 Cassels Brock 36

www.casselsbrock.com

© 2010 Cassels Brock

2100 Scotia Plaza, 40 King Street West, Toronto, Canada M5H 3C2 Phone 416 869 5300© 2010 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trade-marks of Cassels Brock & Blackwell LLP. All rights reserved.