Security agent

The security agent is the person that the lenders under a single credit facility appoint to hold the security granted by the borrower and its group. Articles 2488-6 to 2488-12 of the French Civil Code, in force since 1 October 2017, make the agent the holder of the security: it takes, registers, manages and enforces the security in its own name for the benefit of the creditors of the secured obligation. The rights and assets it acquires in performing its role form a ring-fenced estate (patrimoine affecté), separate from its own estate. The opening of safeguard, judicial reorganisation or judicial liquidation proceedings against the agent has no effect on this estate. For a company borrowing €20m or more from several private debt funds, this regime allows it to grant a single securities account pledge or a single Dailly assignment to the agent. The security remains registered in the agent’s name when a share of the loan changes lender. The agreement appointing the agent must be in writing, failing which it is void, and states its capacity, the purpose and duration of its role and the extent of its powers. The agent brings any action to defend the creditors’ interests and files proofs of claim without a special mandate. It is liable on its own estate for faults committed in performing its role. No authorisation is required to act as security agent. If the contract does not provide for its replacement and the agent fails in its duties, any beneficiary creditor may ask the court to appoint a provisional agent or to replace the agent. Replacement entails the transfer of the ring-fenced estate. Financings governed by English or New York law whose security covers French assets use the same regime.

An industrial group raises €180m of unitranche debt from four funds. The pledges over its subsidiaries’ shares and over its bank accounts are granted to a single security agent. Two years later, one of the funds transfers its €45m participation to a fifth lender. The pledges remain in the agent’s name and the group signs no new security document.

• Check that the appointment agreement is in writing and specifies the role, its duration and the extent of the agent’s powers (article 2488-7 of the French Civil Code).
• Negotiate the agent’s power to release security on a permitted asset disposal without a vote of each lender.
• Have the contract state who bears the security agent’s fees and expenses.
• Review the contractual rules for replacing the agent to avoid a court appointment.