Perkins Coie LLP; Chicago
The use of nonrecourse carve-out clauses and so-called “springing” or “bad-boy” guarantees in commercial lending is a relatively new concept. Accordingly, case law dealing with their enforceability is not very well developed. The courts that have addressed these issues have uniformly held that such lender safeguards are generally enforceable. This article analyzes these early decisions.
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Onsager, Staelin & Guyerson LLC; Denver
I cannot recall how many attorneys, young and old, creditor counsel or debtors I have heard stand up in open court and state with conviction that a debtor must provide “adequate protection” under 11 U.S.C. § 361 for the interest accrual on the lender’s secured debt claim or stated another way, the failure to do so means the equity cushion will be eroded by the accruing interest and adequate protection must be provided for this “erosion by interest accrual.” This proposition then usually translates into the argument that a debtor must keep the interest accrual current as part of the requirements of adequate protection under § 363 to use cash collateral or to prevent relief from stay under § 362, to which I respectfully reply “you’re wrong.”
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