Financing unique assets such as aircraft, artwork and other specialized collateral requires a tailored lending approach. Lenders’ counsel should consider the specific characteristics and risks associated with each asset class. These assets, due to their high value, lack of liquidity and market-specific risks, necessitate specialized financing arrangements to secure the loans. Understanding the Nature of the Asset • Aircraft: Aircraft financing must factor in aircraft type (commercial, private or cargo), age, condition and market demand for the aircraft. Regulatory compliance and maintenance records are key considerations. • Artwork: Artwork financing requires an understanding of the piece’s provenance, the reputation of the artist and the current art market trends. Appraisals can be subjective, making the determination of the artwork’s value difficult. Valuation requires specialized expertise and due diligence. • Other Unique Assets: Luxury yachts, vintage cars, rare collectibles or rolling stock present distinct challenges, with each having unique market dynamics. Lenders must consider intangible factors like market demand, rarity and asset condition. Valuation and Appraisal Lenders typically utilize professional appraisals and market comparables, but these basic valuation approaches may be insufficient. Valuating artwork requires lenders and their counsel to understand concepts of attribution, provenance and connoisseurship. Attribution attributes an artwork to a specific artist or school. A work is authenticated and attributed by three methods: provenance, connoisseurship and material analysis. Provenance traces the artwork’s ownership history. Connoisseurship is the informed opinion of experts. Authentication and appraisal are separate processes. Appraisal should be done by a certified professional. Aircraft valuation uses a more systematic approach: aircraft type and model, age, hours flown, maintenance history and market demand, as well as regulatory and legal registration considerations. Appraising aircraft can be done by a certified appraiser. For other unique assets, such as luxury yachts, specialized yacht surveys are completed where the yachts undergo a thorough inspection process. Due Diligence and Risk Assessment Financing unique assets has risks. Artwork may be stolen or faked; therefore, lenders must verify the work’s authenticity and title. Due diligence requires an online search in at least one stolen art database. Because these databases are not complete, a thorough search of an artwork’s provenance should be conducted. Aircraft have high maintenance costs, are highly mobile and can cross international borders, increasing financiers’ risk for non‑compliance with complex foreign regulations. Domestic and international laws aim to reduce these challenges, but recovering assets after a loan default can be difficult. In the U.S., the Uniform Commercial Code (UCC), the Transportation Code and Section 1110 of the Bankruptcy Code each have specific requirements to secure a lender’s interest in the collateral. International, relevant treaties include The Convention on International Civil Aviation, The 1948 Convention on the Financing Unique Assets Aircraft, Artwork and Specialized Collateral By Vincent Aiello, Attorney, Spencer Fane LLP LEGAL EAGLE SPOTLIGHT 16 | The Show-Me Banker Magazine
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