When structuring secured loans, whether large syndicated credits or small single-lender asset-based facilities, lenders frequently say that their borrowers and any guarantors must grant a security interest in all of their assets to secure the debt. Term sheets for such financings often describe the collateral to be provided as being “all assets.” Moreover, §9-504(2) of the Uniform Commercial Code (UCC) provides that a financing statement sufficiently indicates the collateral if it states that it covers “all assets.” Despite their all-inclusive appearance, however, “all asset” security interests—commonly called “blanket liens”—are subject to various exclusions. Today, we examine some items that commonly are carved out of blanket liens, either by operation of law or by market practice.
Outside Article 9′s Scope
Article 9 of the UCC generally governs consensual security interests only in personal property and fixtures.1 Immediately outside Article 9′s scope, therefore, are liens on real estate. Furthermore, Article 9 expressly does not apply to certain types of personal property, especially insurance, tort claims (other than commercial tort claims) and judgments as original collateral (i.e., not collateral that constitutes the proceeds of other collateral) as well as deposit accounts in consumer transactions. Thus, unless lenders take affirmative steps under non-UCC law (such as recording mortgages or deeds of trust covering real property or taking assignments of insurance policies, judgments or consumer deposit accounts in compliance with applicable common law or statutory requirements), any such property that a borrower may have is excluded from the blanket lien. Prudent lenders, of course, should perform diligence to ascertain the existence and value of any such assets, whereupon they and their borrowers can decide whether the effort and expense of obtaining a security interest in such collateral is warranted.
