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1. Ashley Wexler
   Member

   Reputation:22

    

   We have a large customer of ours that wants a large line, longer terms, etc...we have reviewed fiancials and are not comfortable with this however they are a large part of our business and we want to find something that works for them but will have added security for us.

   What is the BEST security instrument that you can use for a company-even one that may later on file bankruptcy: UCC filing/PMSI or Letter of Credit? **These are both protected from bankruptcy/prefernce payments correct?**

   What is the effect of each on a buyer, i.e. what objections would they have to these...lesser borrowing from their bank on LC or secured lenders in place won't allow UCC?

   Thank you for your insight!

   Posted 1 year ago #

2. Guy Nishida
   Member

   Reputation:65

    

   Ashley,

   A letter of credit would give you good security but that doesn't seem to be what they want. You haven't mentioned insuring their receivables with but that would give you added comfort and security albeit at additional cost. You can customize your deductible, and base the coverage on what risk you are comfortable with handling on your own. If you Google receivables insurance, a ton of links to companies and definitions will appear.

   Posted 1 year ago #

3. Ashley Wexler
   Member

   Reputation:22

    

   Thank you; however most companies were not interested in insuring one risky company for us and after the fall out of our industry and all of the bankruptcies in 2008-09, insurance companies were not interested in our portfolio overall-we acted too late but learned a huge lesson there! Perfecting a UCC filing sounds like a nightmare and can have some delay on shipments if we have to perfect and notify secured lenders BEFORE product ships...it sounds like there might not be a perfect fit for both the creditor and the debtor-we want security and they don't want it to affect any area of borrowing or delay in shipments...we may have to become stern and remind them of our contract and that items are to be paid as agreed and forgo flexibility here.

   Posted 1 year ago #

4. F Scott Wilson
   Member

   Reputation:267

    

   Another problem with UCC-1's that I ran into in the forest products industry is that, once your product becomes part of something else, for instance a sofa, it ceases to be covered by the UCC-1, since it is no longer itself.

   One instrument I use is a security agreement for various pieces of property, or having them sign us on as a lienholder on their trucks, car fleet, et cetera. The trick here is to ensure that the property they offer doesn't have any other encumbrance in first position. File a UCC-1 with that (it's not needed with vehicle titles), and you should be in good shape.

   One thing to watch for with any collateral, or in fact any transaction, is whether the company may file bankruptcy sooner rather than later. The ninety-day preference period has, I've heard, been applied to collateral. I don't have a source for this assertion, unfortunately, but if Bankruptcy Courts and Trustees can proceed against someone who is paid within the ninety-day reachback period, then it stands to reason that transfer of title of any tangible assets could be scrutinized in the same light.

   Posted 1 year ago #

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