"Pledge Agreements for Equity Interests in Partnerships and LLCs," Webinar, Strafford Publications, Inc., January 2015
Equity interests in LLC and partnership interests are a common form of collateral in secured finance transactions, particularly mezzanine financing. The pledge agreement documents the security interest in an LLC or partnership equity interest.
Critical provisions that protect the lender’s interests include the borrower’s choice to opt-in to UCC Article 8. Representations, warranties and covenants of pledge agreements are often different than standard provisions in a security agreement for business assets.
The borrower’s operating agreement should contain the Article 8 opt-in and other key provisions. These may include special preconditions to a voluntary bankruptcy filing, and prohibition of disposal of business assets without the lender’s consent.
Our panel will prepare counsel for lenders to draft equity interest pledge agreements for partnership and LLC interests that provide maximum protection for the lender’s interest. The panel will also outline corresponding provisions that should be contained in the borrower’s operating or partnership agreement.
We 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 that should be included in the borrower’s operating agreement or partnership agreement to facilitate realization on the collateral?
After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.