Security review

Security reviews—when and why?

Often the first step in a restructuring or enforcement 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 signs of distress which might include actual or anticipated financial covenant or payment defaults under the finance documents. There may be internal transfer of a distressed borrowing relationship into a special situations, restructuring or business support group within the lending 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 deal 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 can be done