Finance Transactions: Structuring Legal Opinions for Amendments, Joinders, New Collateral, and Extensions

Description

When a loan is modified, the lender will often require a new or updated opinion of counsel regarding authority, enforceability, and other matters relating to the loan. Whether payment terms are being amended, new borrowers or guarantors are added, there is a change in the collateral, new funds are advanced, or the loan is being extended, there are complex issues to consider.

A threshold question is whether the opinion should cover only the amendment documents (or new guarantors or collateral) or whether counsel should also issue an updated opinion on the underlying transaction. Counsel must also determine what kind of backup resolutions and certifications it will require and whether it will need reaffirmations from existing borrowers and guarantors of their obligations under the loan as modified.

Security interests perfected at the initial closing may be affected by the addition or subtraction of collateral or a change in the loan amount. Counsel must decide how to structure a new perfection opinion and identify the additional filings--either on the mortgage or UCC records--that might be needed to support the opinion. Counsel must also consider novation issues.

Assumptions and qualifications are a critical element of the modification opinion. These will likely include the enforceability of the existing loan, no defaults, no other amendments, and other matters. The timing and extent of these assumptions may be influenced by the assumptions made in the initial opinion.

Listen as our authoritative panel discusses the nuances of legal opinions provided in connection with various loan modification scenarios.