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ARTICLE · 12 JANUARY 2024

Subscription Finance: Commingling Collateral Accounts

Mayer Brown
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For loans primarily secured by a cash flow stream, subscription facility lenders heavily depend on collateral accounts as a key element of the security package.

United StatesFinance and Banking
Kiel Bowen
Kiel Bowen
E. Perry Hicks
E. Perry Hicks
Jeffrey T. Michalczak
Jeffrey T. Michalczak
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For loans primarily secured by a cash flow stream, subscription facility lenders heavily depend on collateral accounts as a key element of the security package. In this Legal Update, we delve into why subscription facilities usually prohibit depositing anything other than capital contributions into the collateral account – often referred to as commingling.

The Potential to Commingle Funds - Automatic and Indefinite Perfection of Cash Proceeds

Under the Uniform Commercial Code ("UCC"), a secured creditor's perfected security interest in collateral continues and is automatically perfected in the proceeds of such collateral if that collateral is disposed of by the pledgor without authorization from the secured creditor. While this outcome under the UCC is beneficial to a secured creditor because it preserves the creditor's claim on the proceeds of the original collateral, it can also generate uncertainty because cash credited to a collateral account could consist of

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