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Amending secured facilities — do I need new security?

By Adam Pierce and Charlotte Drake

It is a question that lenders and their lawyers have to consider every time the terms of a secured transaction change. Will the existing security remain effective following the amendment? Demanding new security routinely, without proper analysis, is rarely a viable approach. Taking new security need not be complicated, but it will cost money, usually the borrower’s money. It will involve new documents, satisfaction of any registration and other perfection requirements, and sometimes new legal opinions.

Even if a lender takes all these steps, new security may not put it in as strong a position as the original security. For example, a new floating charge may be subject to new hardening periods. On the other hand, if a lender assumes it can rely on its existing security without proper thought, it may find itself unsecured.

So, before agreeing amendments, a lender needs to understand whether there is a genuine risk that its existing security will no longer work. Here we explain the key points to consider…

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