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In some secured financing transactions the borrower (or other obligors) may ask the lender to exclude part of its assets from both the fixed and floating charges contained in the security package created to support the lending. The rationale for the request may be legal or commercial. For example, there may be specific covenants affecting assets which would prohibit the borrower from creating security interests over them. Another common reason for a request is that the assets are in another jurisdiction and the costs of taking the relevant security (such as registration fees and taxes) outweigh any perceived value of the asset.
An important preliminary point is how the assets to be excluded from the security package are to be described. If there is a definition of 'excluded assets' in the security documents this needs to be carefully limited. Excluding one or two specific assets is much less problematic than defining excluded assets by reference to a class or category of assets which might change over time eg excluding 'all real property now or in the future situate in [X country]'. Excluding a category of changing assets carries more risk in this context because of uncertainty over when the test for deciding whether the security
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