Secured Transactions

Life of an Unsecured Creditor (Bk)

Very bad. You don’t get paid until everyone else has been taken care of (usually nothing left).

Now you follow the separate bankruptcy code rules.

Life of an Unsecured Creditor (Outside Bk)

1. Informal Pressure, “moral suasion,” intimidation

2. If all else fails. . . court action.

   1. Lots of variation between states, can be very uncertain, procedurally constrained, and you constantly fear they’ll go into Bk.

   2. Your goal here is to transmute your personal claim into a property interest (what you should have done in the first place).

Life of an Unsecured Creditor (no Bk Process)

1. Complaint and Summons

2. Court Action to Judgement Debt (yes you have to pay)

   1. Either through default or trial.

3. Enforcement of judgement debt

   1. Creditor gets a judicial lien (this is your property interest)

      1. Not effective until either filed (if real estate), or if sheriff seizes the property and then disposes it at a foreclosure auction

4. An execution/garnishment lien is also possible if there are no assets

   1. employer withholding (rare)

   2. Go to bank (now involving 3rd party

OVERVIEW (unsecured): Unsecured Credit

Credit cards, personal loans, goods/services financing.

Banks make this work with super high interest rates.

OVERVIEW (unsecured): Revolving Credit Facility

Ongoing credit for varying amounts with no collateral for super creditworthy businesses.

Draw/repay at will to a limit.

Lender obliged to lend

OVERVIEW (unsecured): Bonds/Debentures

Business issued debt (private or public). Interest bearing, unsecured, principle returned at end of term.

OVERVIEW (unsecured): Trade Credit/Commercial Paper

Discountable, seldom interest bearing. Paid at deadline or rolled over. Usually for goods/services. Usually businesses give and take trade credit. Nothing stops someone from creating a security interest here.

OVERVIEW (unsecured): Restaurant Example

You, a farmer, go to sell your beef to a restaurant for 100k. They give you a note that they’ll pay you, but you’re currently super exposed to them, so you go to a bank and sell them that debt with a haircut (based on time to repay/fed interest rate).

Next time you sell, you include that haircut in your price so you still make 100k.

OVERVIEW (secured): Consumer Goods

Goods sold on credit with a security interest in the goods. Seller finances and then sells debt to a financial institution. Cars, appliances.

OVERVIEW (secured): Opex

Working capital loan/credit line secured by some or all assets

OVERVIEW (secured): Business equipment

like consumer cars

OVERVIEW (secured): Acquisition Financing (LBO)

Acquiror’s (syndicates) raise money using the target company as collateral (and often work with junk bond dealers).

OVERVIEW (secured): SPV

Create a box, buy something with it and put it in a box, then issue debt or issue shares of the box secured by what’s in the box.

You got a loan to buy the receivables you put into the box secured by those receivables.

Why? Tax reasons, liability shield, cheaper access to money for the operating business.

UCC IX Overview

Interpation: Liberally construed and applied to

1) simplify, clarify, and modernize the law governing transactions

2) permit the continued expansion of commercial practices through custom, usage, and agreement of parties.

3) to make law uniform through jurisdictions.

CL continues to work in the background anywhere the UCC doesn’t cover.

Substantive Scope of UCC IX

Types of Transactions: Secured Transactions, assignment of receivables, consignment of goods

• what’s similar here? They all have a public notice problem

Types of collateral: Any and all personal property (NO REAL ESTATE)

Types of obligations: Any, not just monetary.