International Recognition of Rights in Aircraft, The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Attachment of Aircraft, and The Cape Town Treaty. U.S. aircraft registration is governed by the Federal Aviation Administration, while the Cape Town Treaty offers an international registration framework. Lenders do not want the bankruptcy or insolvency of the owner or any equity investors to jeopardize their interests in the aircraft or artwork. Lenders should consider various Ownership Trust structures, ensuring the title holder to the aircraft or artwork is bankruptcy remote. Financing Structures, Collateralization and Ownership Trusts The financing structure of unique assets varies but generally follows a traditional approach of utilizing a loan, note and security agreement. UCC filings will secure a lender’s interest; however, lenders should consider utilizing an Ownership Trust when suitable. An Ownership Trust permits a lender to have a trust and trustee hold title to the assets. This structure facilitates asset recovery and liquidation in the event of borrower default or insolvency. In these structures, the Ownership Trust: • Borrows most of the funds (typically 80% to 85%) needed to finance the acquisition of the asset; • Holds the legal title to the asset for the benefit of the lender; and • Leases or grants use of the unique asset to a business entity, borrower or designee. BANCMAC COMMUNITY BANC MORTGAGE CORP. YOUR COMMUNITY BANK MORTGAGE PARTNER bancmac.com mortgages@bancmac.com 888.821.7729 | NMLS# 571147 BancMac provides correspondent and wholesale lending and is your Community Bank Mortgage Partner to help your financial institution originate fixed-rate secondary market loans including: PROGRAMS • Conventional Loans • USDA Rural Development Loans • Rural Living (Hobby Farm) Loans • VA Loans • Jumbo Loans • FHA Loans OUR PARTNERS RECEIVE: • Superior Service & Competitive Pricing • No Minimum Volumes • Significant, Non-Interest Fee Income • Non-Solicit Protections & More Art-secured loans are either collector loans or gallery loans. Collector loans provide financing to art collectors and investors, allowing them to purchase or leverage currently owned art. Terms for collector loans differ primarily depending on the collector’s net worth. Collectors may choose which artworks from their collection would serve as collateral. The maximum loan amount is based on the percentage of the collateral’s appraised value. Gallery loans are business loans to a gallery or art merchant and are usually secured by a gallery’s inventory. Collateral for gallery loans is perfected by filing an Article 9 financing statement in goods or inventory. Conclusion Lending on unique assets requires lenders and their counsel to understand each asset class’s specific characteristics, given their high value and specialized financing arrangements. A systematic approach to lending on these assets will allow lenders to maximize profits and minimize default risk. This article was drafted by Vincent Aiello, an attorney in the Las Vegas office of Spencer Fane who focuses on lending, business and trust matters for high-net-worth clients. For more information, please visit spencerfane.com. The Show-Me Banker Magazine | 17
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