Security review

Security reviews—when and why?

Often the first step in a restructuring is for the lender to ask its legal advisors to conduct a full review of the loan and security documents relating to a particular borrower. This review is likely to be triggered by:

1. •

   signs of distress by the borrowing group, for example actual or anticipated financial covenant or payment defaults under the finance documents, or

2. •

   internal transfer of a distressed borrowing relationship into a special situations, restructuring or business support group within a financial institution. In such a situation, internal process may require that a security review is carried out as the first step after transfer so that the new relationship managers can familiarise themselves with the asset and determine a strategy for dealing with it through any periods of financial difficulty

The purpose of a security review is to enable a lender to:

1. •

   gain an understanding of the borrower's security and guarantee structure

2. •

   ensure that the security has been properly drafted and perfected, and is valid and enforceable

3. •

   understand its enforcement options, and

4. •

   find out whether there is anything that