4000 - Advisory Opinions
Avoidability of Security Interest in Collateral Pursuant to "Contemporaneous" Requirement of 12 U.S.C. §§ 1821(d), 1821(n)(4)(I) and 1823 (e)
FDIC 91-24 April 2, 1991 Alfred J. T. Byrne, General Counsel
We refer to your September 20, 1990 letter concerning the application of the "contemporaneous" requirement of certain sections of the Federal Deposit Insurance Act to certain secured transactions.
Your letter relates specifically to the treatment of holders of collateralized securities if the Federal Deposit Insurance Corporation or Resolution Trust Corporation were appointed receiver or conservator of the insured depository institution, as issuer of the collateralized securities and the "contemporaneous" requirement of 12 U.S.C. §§ 1821(d), 1821(n)(4)(I), and 1823(e).
As you are aware, the Legal Division of the FDIC does not render binding advisory opinions with respect to hypothetical situations that may arise in future receiverships and conservatorships. The actions of the FDIC and RTC are determined on a case by case basis in accordance with applicable law and in light of specific factual situations presented.
Nevertheless, I am willing to offer my reasoned view with respect to the conclusions a court more likely than not would reach in response to your inquiry.
If I correctly understand your letter, you posit that an insured depository institution (the "institution") contemplates issuing a series of promissory notes collateralized by the pledge of certain assets of the institution. The arrangement will be evidenced by a written agreement (the "Agreement") which, among other things, will grant or create a security interest in the collateral and contain a collateral maintenance agreement. The Agreement will be signed by the institution and the secured party, a trustee for the benefit of holders of the notes, typically, institutional investors. Appropriate financing statements will be filed to perfect the security interest of the trustee.
The transaction will be approved by the institution's board of directors, and the Agreement will be continuously an official record of the institution.
You also advise that the Agreement is to provide for the issuance of additional notes and the pledge of additional collateral to secure the additional notes from time to time. The additional notes are to be issued subject to and are to be entitled to all of the benefits of the Agreement. The board of directors will approve in advance or contemporaneously, additional notes as they are issued. Pursuant to the Agreement, the institution may from time to time add to or substitute collateral to secure all initial and subsequently issued notes.
Provided the collateral is held by the trustee pursuant to a properly perfected security agreement in the ordinary course of business with no evidence of fraud or collusion, neither the FDIC nor the RTC should be able to avoid the security interest in the collateral were the institution declared insolvent and the FDIC or the RTC appointed receivers, solely because specific collateral pledged to secure payment of the notes would change from time to time or the aggregate amount of collateral pledged were increased to reflect any increase in the aggregate debt owing to noteholders.
You refer to 12 U.S.C. §§ 1821(d), 1821(n)(4)(I) and 1823(e) for the proposition that all aspects of a transaction within the purview of these sections must be "contemporaneous" in order to be enforceable.
I assume the proposed transaction is to be undertaken in the ordinary course of business with no contemplation of insolvency and no intent to hinder, delay or defraud the institution or its creditors.
I also assume that (a) the secured transaction is a bona fide, arm's length transaction, (b) the secured parties are not insiders or affiliates of the institution, (c) the grant of the security interest is for adequate consideration, and (d) the Agreement evidencing the grant of the security interest is evidenced in writing, executed by the institution contemporaneously with the incurrence of the secured obligation, approved by the institution's board of directors or loan committee reflected in the minutes of the board or loan committee, and continuously from the time of its execution an official record of the institution.
The foregoing view addresses only avoidability of the security interest in collateral pursuant to the specifically referenced sections of the U.S.C. It does not address avoidability of the security interest in the collateral under any other provision of law or regulation.