collateral assignment of rwi

Senior Lender Considerations in Respect of Representation and Warranty Insurance in Middle Market Private Equity Transactions

Critical to a lender’s evaluation of an acquisition financing is the allocation of potential liability exposure of the business to be sold. From a lender’s perspective, an acquisition arrangement will be ideal if there is a broad indemnity package from the seller to protect against losses incurred post-closing. Traditionally, escrow agreements, purchase price holdbacks or some other form of guaranty have been sources of such protection for buyers and their lenders. But for the past 15 years, an additional method to allocate risk has emerged — Representations and Warranties Insurance (“RWI”). RWI can supplement or backstop an indemnification package or can serve as a buyer’s primary source of recovery. This article will address the benefits to a senior secured lender of RWI, and certain considerations financial institutions should make in documenting a middle market loan transaction when an acquisition financing utilizes RWI.

Advantages of Representation and Warranty Insurance in Middle Market Acquisitions

An RWI policy may specify either the seller (“seller-side” policy) or the buyer (“buyer-side” policy) as the insured. The majority of RWI policies underwritten in the US consist of buy-side policies, since they provide buyers the capability of directly recovering from the insurer without making a claim against a seller. An RWI policy often serves as a backstop (seller-side) or security (buyer-side) for a seller’s indemnification obligations for breaches of representations and warranties under an acquisition agreement.

There are four attributes of RWI that make it attractive for both buyers and lenders: (i) it may be used to extend the duration of indemnification coverage for breaches of representations and warranties beyond any time limit set forth in the acquisition agreement, (ii) it may increase the scope of matters to be indemnified under the acquisition agreement as sellers may be more willing to make representations and warranties in respect of certain matters if their indemnification obligations are limited and coverage is provided by RWI, (iii) it may increase the amount of loss coverage available to the buyer above the cap(s) provided by the seller in the acquisition agreement or any separate escrow agreement and (iv) it can lead to a quicker resolution of acquisition agreement negotiations between anxious, risk-averse buyers and sellers that are trying to limit their indemnity exposure and holdback obligations — especially those private equity sellers that want to be able to close out their funds and fully distribute sales proceeds to investors. 

RWI has become a prominent feature in middle market acquisitions since it is most suitable for deals with enterprise values ranging between $20 million and $1 billion. Companies worth over $1 billion may require insurance coverage that is more than most insurance underwriters are willing to take on, and premium costs, professional fees and expenses may be too prohibitive for deals valued at less than $20 million; an underwriting fee alone on average can be as high as $30,000.   Of importance, in the last five years, there has been a noticeable surge in the number of RWI policies that have been underwritten for transactions where the purchase price is in the range of $20 million to $100 million. 

Three practical reasons why the product has become increasingly popular in middle market private equity transactions include (i) the process for obtaining a RWI policy has been streamlined, (ii) the pricing for policies has decreased drastically over the last five years and (iii) there is now a track record of the insurers paying claims.

Commitment Paper Considerations for a Senior Secured Lender

Most acquisition financing commitment letters have become subject to minimal conditionality, and as a result, quite often buyers and sellers will insist on commitment letters with limited closing conditions. Given this limited conditionality in the commitment letter, lenders need to be satisfied with all aspects of the deal prior to signing because they may not have much flexibility to avoid funding their commitments once the commitment letter and acquisition agreement are signed. And thus, what recourse, if any, the buyer has on a post-closing basis against the seller in the event of the seller’s future breach of its representations and warranties, will be of special interest to most lenders during commitment paper negotiations — especially, if the lenders discover any red flags in due diligence prior to the commitment paper signing. 

Traditional acquisition agreement indemnification arrangements for buyers may not provide lenders the full protection they need for the duration of any credit facility. While escrow arrangements are still present for many deals, they provide limited protection for both buyers and lenders in that many escrows only last for 12-18 months post-closing, with some providing for partial release as time passes; this time period of coverage is much shorter than a typical senior secured credit facility maturity date that commonly ranges from 3 to 5 years. Escrow arrangements, in particular, often do not provide full protection to the buyer, either because the funds in escrow are insufficient to fully cover seller contractual breaches or may require litigation to obtain. Sellers often resist escrows because they tie up funds for extensive periods of time. Separately, absent fraud, taxes, and certain specified representations and warranties, sellers’ out-of-pocket indemnification coverage for breaches of most representations and warranties, will almost always be limited to a relatively small percentage of the purchase price; moreover, the time period in which a buyer may be permitted to pursue a claim directly against a seller under an acquisition agreement will often expire prior to the maturity date of any senior credit facility.

In light of the foregoing, RWI has become a useful tool for lenders during commitment paper negotiations, in order to get comfortable with diligence issues and potential acquisition agreement breaches of representations and warranties that may arise after signing; RWI can provide for longer terms of coverage and a much higher amount of coverage than any escrow arrangement or direct seller indemnification package could provide. Under a typical acquisition agreement lender assignment provision, if a lender were to be the successor or assignee of a buyer, such lender would have all of such buyer’s rights under such acquisition agreement — such as the right to potentially collect from the sellers or an escrow account for any indemnifiable losses.

Senior Credit Documentation Impacted by Representation and Warranty Insurance

During commitment paper negotiations, senior lenders will review acquisition agreement documentation to be signed up concurrently with commitment papers. At this time, lenders will be made aware of RWI by (i) receiving a RWI term sheet from the buyer and/or (ii) reviewing various provisions in an acquisition agreement that refer to a RWI policy to be bound on or prior to the closing of the acquisition; more often than not, the delivery of such RWI policy will be a condition precedent to closing an acquisition, and will be referred to in the indemnification section of an acquisition agreement.  A lender will be mostly interested in the terms of coverage, the limits on coverage (i.e., limits are often set at 10% of enterprise value), the amount of any deductible or retention, any exceptions from coverage and whether the buyer’s rights under such policy can be assigned to a lender as additional collateral for the senior secured debt facilities.  Common policy exclusions include, but are not limited to:

  • Known liabilities and potential liabilities disclosed on acquisition agreement disclosure schedules and known to the buyer as of the closing date.
  • Federal Corrupt Practices Act (FCPA) violations; however, coverage may be obtainable if the insured is able to demonstrate a strong compliance and internal controls program.
  • Certain tax representations; however the emerging RWI market is becoming more flexible in covering losses and transfer pricing.
  • Certain securities law violations in respect of the target’s publicly-traded securities.
  • Misrepresentations known by the seller (in the case of a seller-side policy) or by the buyer (in the case of a buyer‑side policy).

Acquisition financing commitment papers describe in detail the amount of any proposed financing, the terms of the financing, and, the conditions that will need to be satisfied before the lenders are required to fund their commitments. And thus, promptly upon being made aware of RWI in an acquisition, senior secured lenders would be well advised to push for certain protections in their commitment papers. 

First, a senior lender may inquire if it can be listed as an additional insured or loss payee on the RWI policy itself; this could permit a lender to receive insurance proceeds directly from the insurer, in the event the breach by the seller of any of its acquisition agreement representation and warranties results in losses that are covered by the insurance policy. If this request is rejected, then a senior lender should require, as a condition to funding, that the borrower deliver a collateral assignment of RWI policy.

Often, an insurance broker will have its own form of collateral assignment of RWI policy, and in other circumstances, a lender can prepare its own form. However, no matter what form is used, the collateral assignment will be held by the senior lenders as collateral security for any and all of the obligations under the definitive financing documentation, and the lenders will be granted the right to receive all insurance proceeds under the RWI policy upon the occurrence of an “event of default” under the applicable loan agreement. Moreover, often upon the occurrence and during the continuance of an event of default, a collateral assignment will bestow upon an administrative agent, on behalf of the lenders, the right to exercise all rights of the buyer under the terms of the RWI policy.

Finally, senior lenders with negotiating leverage against borrowers and private equity sponsors should structure mandatory prepayment term sheet provisions to include the requirement of a mandatory prepayment triggered by a buyer’s receipt of RWI proceeds; specifically, commitment papers should include a mandatory prepayment of the senior obligations in the event any loan party or any of its subsidiaries receives, in its capacity as a buyer, any payment in connection with a claim under a RWI policy covering certain losses under an acquisition agreement. If successful, the lenders will typically exclude certain costs and expenses from any prepayment requirement, such as (i) the payment of (or reimbursement of payments made for) claims and settlements to third persons that are not affiliates of a loan party or subsidiary, or (ii) any out-of-pocket expenses (including out‑of‑pocket legal expenses and any taxes) incurred by any loan party or any subsidiary in connection with pursuing payment of the claim or remediating any damages caused by any matter related to such claim under the RWI policy), in excess of a to-be-agreed amount. Often, a borrower will also request a carve-out from the prepayment in the event the proceeds are used to reinvest in similar assets as those affected by a breach by the seller. In the middle market, the indemnification prepayment percentage commonly ranges from 50% to 100% in deals that include such a prepayment. 

Final Considerations

RWI can be an effective tool in bridging the gap between a seller’s and buyer’s indemnifiable risk allocations. It can also lead to a quicker closing of a transaction. But with it, come obligations for the senior lenders to carefully review the terms of the insurance policy, particularly to ensure that lender‑sensitive risks will be insured, and that the buyer’s rights under the policy are assignable to lenders. A sophisticated senior secured lender with negotiating leverage would be best advised to be named an additional insured or lender loss payee on such insurance policy, or in the alternative, to receive a collateral assignment of RWI policy; such lender should also obtain and review copies of all material due diligence reports and requests generated by the buyer during the RWI process. During commitment paper negotiations, a senior lender should carefully strive to negotiate a mandatory prepayment from any proceeds received under such policy, subject to certain carve‑outs.  

However, as no two transactions are identical, there is no perfect playbook for lenders when RWI is utilized on a given transaction. Instead, lenders and their counsel should be prepared to focus on the RWI terms of coverage and related loan documentation that will impact them the most —  especially as RWI shows no signs of leaving the middle market any time soon.

This article was originally published by Chapman and Cutler LLP on December 14, 2017, and was republished by the The Banking Law Journal in its February 2018 issue. The republished article is posted  with permission.

Relevant Documents

Related people, related practices.

  • Banking and Financial Services

We have always been focused on finance .

  • 1913 TS Chapman partners with Henry Cutler to form Chapman and Cutler
  • 1st Chapman's first client in 1913 is still a client of the firm today
  • 22 Diverse financial practices serving regional, national, and global clients
  • 6 Offices across the country and in key US financial centers

We use cookies to deliver our online services. Details of the cookies we use and instructions on how to disable them are set out in our  Privacy Policy . By using this website you agree to our use of cookies.

  • Contributors

Representations and Warranties Insurance in M&A Transactions

collateral assignment of rwi

Jeffrey Chapman is Partner, Jonathan Whalen  is an Associate, and  Benjamin Bodurian is an Associate at Gibson, Dunn & Crutcher LLP. This post on their recent Gibson Dunn publication.

Under a buy-side representations and warranties insurance (“RWI”) policy, the buyer in an M&A transaction recovers directly from an insurer for losses arising from certain breaches of the seller’s representations and warranties in the acquisition agreement. By shifting the risk of such losses from the seller to an insurer, the buyer and seller can limit or even eliminate the seller’s liability for certain rep breaches, all without materially diminishing the buyer’s coverage.

The Evolving RWI Market

As RWI has gained market acceptance over the last few years, a significant number of new insurers have entered the RWI market. With this increased competition, market forces have led insurers to offer improved terms to buyers seeking RWI coverage.

For instance, just a few years ago, RWI premium amounts generally ranged from 3% to 4% of coverage limits, and RWI “retention” ( i.e. , deductible) amounts generally ranged from 1.5% to 2% of deal value. Since then, premium and retention amounts have steadily decreased. In today’s market, RWI premiums are routinely below 3% of coverage limits, and retention amounts are generally 1% of deal value or lower.

Moreover, buyers have become more comfortable with the RWI claims process. Initially, buyers were skeptical that insurers would actually pay claims made under RWI policies. However, as insurers have routinely paid valid claims over the last few years, the stereotype that it is more difficult to collect under an RWI policy than under a customary seller indemnity has been broken.

As a result of these changes, along with an increasingly competitive, seller-friendly deal climate, buyers have become more comfortable relying primarily or exclusively on RWI, which has allowed them to limit or even eliminate the traditional seller indemnity.

Limiting the Seller’s Liability with an Indemnity “Strip”

Consider a $500 million transaction in which the buyer seeks a $50 million indemnity for breaches of the seller’s reps. If the buyer instead obtains an RWI policy with a $50 million coverage limit and a $5 million retention, the buyer and seller will only need to allocate the risk of the first $5 million in losses between them.

Often, the parties will agree to split such losses evenly, with a deductible applying to the buyer’s first $2.5 million in losses and a seller indemnity of at least twelve months applying to the buyer’s next $2.5 million in losses. As a result, the seller’s liability for rep breaches will be limited to a $2.5 million “strip,” equal to just 0.5% of deal value.

Under many RWI policies, the retention will “drop down” to a reduced amount—generally 50% of the initial retention—on the first anniversary of the closing. When combined with a seller indemnity like the one described above, the retention drop-down limits the buyer’s liability for rep breaches covered under the policy to the $2.5 million deductible, because when the seller indemnity expires, the RWI retention drops down to prevent a coverage gap.

Eliminating the Seller’s Liability with a “No-Survival” Deal

Alternatively, the parties might agree to completely eliminate the seller’s liability for certain rep breaches. In a “no-survival” deal, some or all of the seller’s reps do not survive the closing. Accordingly, the seller will not indemnify the buyer for breaches of such reps following the closing, and the buyer will look solely to the RWI policy to recover losses from such rep breaches.

Many insurers are now willing to offer the same coverage limit, initial retention, drop-down retention, and scope of coverage in a deal  without  a seller indemnity as in a deal  with  a seller indemnity. Most insurers will impose a modest premium increase to reflect the perceived moral hazard of a no-seller indemnity transaction structure.

Using the above example, if the parties eliminate the seller indemnity, the buyer’s incremental exposure will be limited to the amount that would have been covered by the seller’s indemnity strip ( i.e. , $2.5 million), with the buyer’s aggregate exposure equaling $5 million, or 1% of deal value. If the RWI policy includes a typical drop-down retention, the buyer will only face this incremental exposure up until the retention drop-down date.

The General Benefits of RWI

Using RWI to limit or eliminate the seller’s liability for rep breaches obviously benefits the seller. But it benefits the buyer, too.

RWI can help distinguish the buyer’s bid in an auction process; in addition to making the bid more attractive economically, it can meaningfully shorten negotiations over the acquisition agreement, which can be an important factor in a competitive process.

Also, using RWI to limit the seller’s liability may make the seller more willing to expand the substantive coverage of its reps and to reduce the use of knowledge qualifiers, thereby improving the buyer’s basis for recovery under the policy.

The Unique Benefits of No-Survival Deals

While limiting the seller indemnity can meaningfully shorten the negotiation timeline, eliminating it entirely can dramatically simplify negotiations. For example, even in a $100 million transaction, the respective deal teams can spend a surprising amount of time negotiating a $500,000 indemnity strip.

Eliminating the seller indemnity also can enhance the buyer’s coverage under the RWI policy. Most policies will include two types of “coverage enhancement.” First, they will include a “full materiality scrape”— i.e. , they will “read out” materiality qualifiers in the reps for purposes of determining whether a rep has been breached and the amount of losses resulting from such a breach. Second, they will not impose a “damages exclusion” on the buyer’s recovery— i.e. , they will cover a range of damages, including consequential damages and those based on multiples of earnings and lost profits.

In a no-survival deal, most RWI policies will include these coverage enhancements as a matter of course (that said, before including a materiality scrape, the insurer will want to confirm that the seller has populated the disclosure schedule without regard to the materiality qualifiers in the reps).

By contrast, in a deal with an indemnity strip, most policies will only include these coverage enhancements if the acquisition agreement includes a full materiality scrape and does not include a damages exclusion (and, as mentioned above, the insurer will scrutinize the seller’s population of the disclosure schedule before including a materiality scrape). In essence, while the insurer is generally willing to offer coverage enhancements, if the seller is providing an indemnity, the insurer is generally only willing to offer such coverage enhancements to the extent the seller also does so.

Accordingly, seeking a seller indemnity can jeopardize the buyer’s efforts to obtain coverage enhancements under the RWI policy, since the seller may resist a materiality scrape or insist on exclusions for certain categories of damages. By contrast, if the seller indemnity is eliminated, most insurers will provide these coverage enhancements as a matter of course.

A no-survival deal also may help the buyer preserve important relationships with the seller after the closing. At times, the buyer will be relying on a transition services agreement with the seller. In addition, members of the seller group often continue serving as members of the acquired business’s management team. Under these circumstances, a seller indemnity could put the buyer in the unenviable position of suing its new service provider or management team after the closing.

Finally, from a post-closing claims administration standpoint, a no-survival deal may prove less burdensome for the buyer than a deal with an indemnity strip. When a claim arises in a no-survival deal, the buyer can work with a stable, creditworthy insurer to process the claim, rather than also having to concurrently seek a small recovery from the seller, as it would in a deal with an indemnity strip. Also, a no-survival deal allows the parties to avoid establishing an escrow fund.

The Limits of RWI

Despite its benefits, RWI is not a panacea. As its name suggests, RWI only covers rep breaches; it does not cover covenant breaches, purchase price adjustments, or other payment obligations that might arise under an acquisition agreement.

In addition, the buyer customarily purchases RWI coverage in an amount equal to approximately 10% of deal value. This leaves the buyer exposed to extraordinary losses from fundamental rep breaches in excess of the coverage limit. In a transaction with a seller indemnity, the seller might agree to indemnify the buyer for losses arising from fundamental rep breaches in excess of the RWI coverage limit. In a no-survival deal, however, it is relatively uncommon for the seller to provide a standalone indemnity for fundamental rep breaches.

RWI also can pose a trap for the unwary in terms of coverage for pre-closing taxes. RWI will cover the tax reps in the acquisition agreement, and some policies will also include a standalone pre-closing tax indemnity to the extent the seller provides one. However, as described further below, pre-closing tax coverage under the RWI policy will be limited to coverage for taxes that the buyer does not know about when the policy is bound.

So, for instance, accrued taxes for pre-closing periods that are not yet payable would  not  be covered under the policy, even though such taxes typically would be covered under the seller’s standalone pre-closing tax indemnity. Thus, even if the buyer agrees to a no-survival deal, it should nevertheless consider insisting that the seller provide a standalone pre-closing tax indemnity covering taxes for which the buyer will not have coverage under the RWI policy.

Finally, most policies will include a range of coverage exclusions or limitations. First, as mentioned above, the buyer will not be able to recover for liabilities it knew about when the policy was bound, regardless of whether such liabilities are included in the disclosure schedule. Thus, the buyer’s due diligence will pose a Catch-22: the buyer will want to conduct a comprehensive diligence process so that it is fully aware of all of the target company’s risks, but doing so will deprive the buyer of coverage under the policy for any liabilities that it uncovers.

Second, some policies may include a blanket carve-out from coverage for certain categories of losses, including those arising from the following liabilities (whether known or unknown to the buyer): asbestos and polychlorinated biphenyls; transfer taxes, taxes accrued on the balance sheet, taxes disclosed on the disclosure schedule, and net-operating losses and other types of deferred tax assets; underfunded benefit plan liabilities; and liabilities related to employee misclassification and compliance with wage-and-hour laws.

Increasingly, some insurers are willing to at least provide “excess” coverage for some or all of the above liabilities. The buyer will look to a primary environmental, tax, benefits, wage-and-hour, or other insurance policy to recover its initial losses. Then, the RWI insurer will cover losses in excess of a specified dollar threshold— i.e. , the RWI policy will “sit in excess” to the primary policy.

Plugging RWI Coverage Gaps

Almost every buyer will experience some heartburn over a liability that it uncovers during diligence, or over a potential liability that it knows will be subject to an RWI carve-out or excess coverage limitation. If the buyer decides that it cannot bear the risk of such a loss, and it still wants to do the deal, then it will need to work with the seller to find a way to share the risk.

One way is through an upfront deduction to the purchase price. While this will provide the buyer with guaranteed coverage for at least some amount of the risk, a purchase price deduction is an imprecise remedy, as it might exceed or fall short of the ultimate liability.

An alternative is for the seller to provide a “special” indemnity, often backed by an escrow fund, for the identified liability. For example, the buyer may be worried about asbestos liabilities, which will be subject to a carve-out or excess coverage limitation under the RWI policy. Accordingly, the seller would indemnify the buyer for any losses arising from such liabilities, irrespective of the deductible or cap applicable to general rep breaches. While a special indemnity invites the risk of future disputes with the seller, it allows for more precision than an upfront purchase price deduction.

Finally, the buyer might simply look to utilize a primary insurance policy, with excess coverage being provided under the RWI policy. If the target company already has adequate primary insurance policies in place, then those policies often can be rolled over post-closing. If such policies are inadequate, then the RWI insurer often will be willing to underwrite an environmental, tax, benefits, wage-and-hour, or other primary insurance policy to go along with the RWI policy.

Supported By:

collateral assignment of rwi

Subscribe or Follow

Program on corporate governance advisory board.

  • William Ackman
  • Peter Atkins
  • Kerry E. Berchem
  • Richard Brand
  • Daniel Burch
  • Arthur B. Crozier
  • Renata J. Ferrari
  • John Finley
  • Carolyn Frantz
  • Andrew Freedman
  • Byron Georgiou
  • Joseph Hall
  • Jason M. Halper
  • David Millstone
  • Theodore Mirvis
  • Maria Moats
  • Erika Moore
  • Morton Pierce
  • Philip Richter
  • Marc Trevino
  • Steven J. Williams
  • Daniel Wolf

HLS Faculty & Senior Fellows

  • Lucian Bebchuk
  • Robert Clark
  • John Coates
  • Stephen M. Davis
  • Allen Ferrell
  • Jesse Fried
  • Oliver Hart
  • Howell Jackson
  • Kobi Kastiel
  • Reinier Kraakman
  • Mark Ramseyer
  • Robert Sitkoff
  • Holger Spamann
  • Leo E. Strine, Jr.
  • Guhan Subramanian
  • Roberto Tallarita

Our Solutions

Post-closing, deal dashboard.

Loan Agency

Featured Deals & Clients

Insights topics.

Deal Terms Analysis

Due Diligence

Indemnification

Life Sciences

Shareholder Representation

Tools for Practitioners

A Primer on Representations and Warranties Insurance

collateral assignment of rwi

Senior Director, Thought Leadership

Related Insights

Influence of Representations and Warranties Insurance on Private Negotiations, Deal Terms, and Claims Activity

Deal Terms Analysis Indemnification

Effect of Representations and Warranties Insurance on Deal Terms

Effect of Reps and Warranties Insurance (RWI) on Deal Terms

2020 Buy-Side Reps and Warranties Insurance Deal Terms Update

Introduction

The allocation of risk shapes every merger and acquisition, and the backbone of risk allocation is the right of the acquiring company, the buyer, to be indemnified for breaches of the seller’s representations and warranties. For M&A deals involving the acquisition of a private target entity, the sellers typically bear the indemnification risk.

This risk has traditionally been managed using a two-tiered structure: (i) a holdback or escrow funded from proceeds the sellers ultimately expect to receive, and (ii) in the event of a claim beyond the holdback or escrow, the right of the buyer to clawback proceeds from the sellers directly. In the late 1990s/early 2000s, Representations and Warranties Insurance (RWI) emerged as a niche tool to shift some or all indemnification risk to an insurer. Due to falling costs, quicker and more efficient underwriting and improving policy terms, RWI is rising in popularity in recent years. However, in the U.S., it remains a specialized product that many M&A professionals are still learning about.

An RWI policy can be either “buy-side” or “sell-side.” When the buyer is the insured (a buy-side RWI policy), RWI can reduce or eliminate the need for a holdback or escrow because the buyer can pursue the insurance policy instead of pursuing the sellers; although, it should be noted that the sellers may remain liable for purchase price adjustments and other excluded matters as well as for liability above the insurance limits and for fraud. When the sellers are the insured (a sell-side RWI policy), they remain liable to the buyer pursuant to the underlying acquisition agreement, but the insurance policy serves to protect the sellers against covered losses when the buyer seeks indemnification from them with respect to breaches of their representations and warranties.

In the U.S. market, buy-side RWI is more prevalent than sell-side RWI, comprising a large majority of the RWI policies issued according to major insurers and available market data.

Why Buyers and Sellers Use Representations and Warranties Insurance

  • Buy-Side RWI

Buy-side RWI policies allow the buyer to seek indemnification from an insurer for losses covered by the policy. Buy-side RWI is often used to:

  • Enhance the buyer’s bid for a desirable target entity. In a competitive auction scenario, for example, the buyer’s willingness to recover from a buy-side RWI policy instead of from a traditional holdback or escrow can make the buyer’s bid more competitive.
  • Protect deal relationships. Where a buyer desires to protect seller or target- company management relationships post-closing (such as with respect to key employees or investors), buy-side RWI alleviates the likelihood of needing to proceed against the sellers in the event of a breach of their representations and warranties.
  • Maximize sellers’ internal rate of return (IRR). Buy-side RWI that reduces or replaces the need for traditional holdbacks or escrows allows the sellers to receive proportionally more proceeds at closing, which may enable institutional sellers to make proportionately larger distributions to investors at closing.
  • Bridge the gap in indemnification terms. Buy-side RWI can be used to supplement the sellers’ indemnification obligations, if the buyer desires greater protection than that provided by the underlying acquisition agreement’s indemnification provisions.
  • Facilitate acquisition lending. Insurance proceeds paid out under a buy-side RWI policy are assignable to acquisition lenders. This may be an important factor for lenders, especially in highly leveraged transactions.

Sell-side RWI policies protect the sellers against covered losses when the buyer seeks indemnification from them with respect to breaches of their representations and warranties and can be designed to protect all or part of the held-back or escrowed funds or to protect sellers’ clawback risk above such funds, or a combination of all of the preceding. Sell-side RWI is often used to:

  • Add certainty to the purchase price. Sell-side RWI compensates sellers for indemnification-related covered losses, providing a greater sense of certainty with respect to the purchase price.
  • Maximize IRR. Sell-side RWI may alleviate the need for sellers to set aside internal reserves for contingent liabilities, which may allow for earlier distribution of closing proceeds to sell-side parties.
  • Close quickly. With sell-side RWI backstopping their risk, sellers may be willing to negotiate and close the underlying M&A deal quickly, even when the buyer insists on a holdback or escrow.
  • Protect passive and minority sellers. Sell-side RWI can protect all sellers’ indemnification risk, including passive and minority sellers who may not have been involved with the day-to-day operations of the target entity or the deal- specific negotiation of the representations and warranties and indemnification provisions.

What steps are typically involved in the RWI process, and how does the process differ for buy-side RWI policies as opposed to sell-side RWI policies?

  • Three-Step Process

Purchasing RWI coverage typically proceeds in three stages and involves the proposed insured, an insurance agency, and one or more insurance underwriters. The overall process may take two to three weeks, including several business days for the underwriters to review submission materials and issue non-binding indication letters (also known as quote letters) and approximately 1 to 2 weeks for the formal underwriting process, underwriting call and policy wording negotiation. Quicker turnaround is sometimes feasible, and factors that affect timing include things such as seasonality, transaction- complexity, level of detail discussed on the underwriting call, timing of responses to the underwriter’s follow-up questions after the call and use of previously used policy wording.

STEP 1: Submit Underwriting Materials and Solicit Quotes

The proposed insured and its insurance agent discuss the underlying M&A deal and the structure of the desired RWI coverage, and the insurance agent submits preliminary underwriting materials to one or more RWI underwriters. Preliminary submission materials typically include the target company’s financial statements and a current draft of the acquisition agreement, and, if available, draft disclosure schedules and target company overview materials (e.g., Pitch Book, Confidential Informational Memo, Board Presentation, Lender Presentation).

STEP 2: Receive and Review Quotes and Negotiate Any Desired Changes

During this stage, the insurance underwriters review the preliminary submission materials and, if interested in the RWI opportunity, provide non-binding indication letters (also known as quote letters) showing preliminary insurance terms. The insurance agent typically reviews the quotes with the proposed insured and, if applicable, assists with the RWI preliminary negotiations.

STEP 3: Underwrite and Bind RWI Coverage

Most RWI underwriters charge an underwriting fee to cover the expected costs of their outside underwriting counsel, with the fee typically due when the proposed insured focuses in on one quote and selects the corresponding insurance carrier to initiate formal underwriting. Underwriting counsel typically assists the insurance underwriters with the review of the acquisition agreement and disclosure schedules and the data room and due diligence memoranda. The insurer and their counsel then conduct an underwriting call with the proposed insured, their deal advisors (e.g., legal, financial, tax) and their insurance agent. Once any underwriting call follow-up questions are answered and policy wording is negotiated, RWI coverage is typically bound at signing or closing. RWI coverage can also be bound post-closing, but it should be noted that finalizing RWI coverage after the underlying M&A deal is signed or closed results in the proposed insured being uninsured against reps and warranties breaches during that interim time period.

With both buy-side and sell-side RWI coverage, the underwriting process is intended to provide the insurer and their counsel with comfort regarding the people and process involved in the underlying M&A deal; although, the insurance underwriters may speak with different people for each type of coverage and may have access to different written materials. For example, during buy-side RWI underwriting, the insurer and its underwriting counsel typically evaluate the thoroughness of the buyer’s due diligence by speaking with the buyer and their advisors and examining the buyer’s due-diligence- efforts request list and internal or external diligence reports. During sell-side underwriting, the insurer and their underwriting counsel typically evaluate the sellers’ due-diligence-response efforts and disclosure process by speaking with the target company management, the sellers and their advisors and examining the buyer’s due- diligence-request list, but there typically is not access to the buyer’s diligence reports. The insurer and their underwriting counsel will generally require access to the data room regardless of whether underwriting a buy-side or sell-side RWI policy, as spot- checking the data room information against the sellers’ disclosure schedules can help the insurer and underwriting counsel ascertain the thoroughness and accuracy of those schedules.

What are typical RWI policy terms and exclusions?

  • Typical RWI Terms

Each policy is tailored to the transaction. Typical terms include:

  • Pricing. The premium is a percentage of the insured amount, typically 2.5 to 6%. Relevant factors affecting pricing include things such as transaction value, deductible size, target company industry and business line, scope and depth of indemnification obligations, amount of time between signing and closing, quality of the transaction diligence, identity of transaction principals and their advisors and insurance market dynamics. In addition to the insurance premium, most RWI underwriters charge an underwriting fee to cover the expected costs of their outside underwriting counsel, with the fee typically due when the proposed insured focuses in on one quote and selects the corresponding insurance carrier to initiate formal underwriting.
  • Deductible. The deal parties bear a portion of the risk in the form of a deductible (also known as a retention) before a claim can be made under the RWI policy. Deductibles for RWI policies are often in the range of 1 to 2% of the underlying M&A deal value; although, higher deductibles may apply for smaller transactions. With sell-side RWI coverage, the sellers sometimes request the deductible to equal the indemnification escrow, with the RWI coverage applying that attachment point to protect against clawback risk above the escrow.
  • Coverage. RWI policies generally cover unexpected, unknown breaches of the representations and warranties made by the sellers in the acquisition agreement, subject to exclusions for high-risk areas or risks that the insurer is not willing to cover. Exclusions are discussed in the next section.
  • Duration. While RWI policy coverage periods can be set to match the underlying acquisition agreement’s survival and indemnification periods, it’s more common to see a 3/6 split, meaning a three-year policy period applicable to discoveries of breaches of general reps and warranties and a six-year (or shorter statute of limitations) policy period applicable to discoveries of breaches of tax and fundamental reps and warranties. Certain reps and warranties not typically defined as “fundamental” are sometimes eligible for the longer policy period.
  • “No-claims” declaration. RWI underwriters generally require a no-claims declaration from the insured at the time of binding the RWI coverage stating that the deal team members are not aware of any existing or expected breaches of the covered representations and warranties. While exact scope and wording vary, the intent is to reinforce that RWI coverage is not generally intended to cover known or expected breaches.
  • Subrogation. RWI insurers typically retain the right to subrogate against (i.e., seek recourse against) responsible parties that caused the insured loss. While subrogation is not an unusual concept in the insurance industry, it is sometimes negotiated case by case with respect to RWI coverage. For example, buy-side RWI policies sometimes limit the insurers right to subrogate against the sellers to situations involving sell-side fraud in the underlying M&A deal.

While each RWI policy is unique and tailored to address the underlying M&A deal, RWI policies typically do not cover purchase price adjustments, breaches of covenants or forward-looking statements or underfunding of employee benefit plans. Deal-specific exclusions are sometimes included in RWI policies for known or expected breaches or other matters that are known problems or that were not diligenced sufficiently, and sell- side RWI policies typically include a fraud exclusion. Specific escrows or other transactional insurance products such as tax insurance, specific litigation insurance and contingent liability insurance may be available to address some of the risks not typically covered by RWI policies.

How are claims under the RWI policy handled?

Typically, the insured is required to notify the insurer of breaches or potential financial losses that may erode the deductible or cause a claim against the RWI policy. Further, the insurer often has participation and consent rights with respect to litigating and settling claims brought against the insured by third parties. Once an insurable loss materializes, the insured can make a claim under the policy. The insurer will review the claim to determine whether the loss is covered and to what extent. If the loss is covered, the insurer will typically reimburse the insured for a loss incurred or, if the loss is owed to a third party, pay such third party on behalf of the insured. The RWI broker’s role during the claims process is to assist the insured in negotiating with the insurer to facilitate a claim payout.

As noted above, each RWI policy is unique and tailored to the specific underlying M&A deal, but it’s common for RWI policies to require the insured to inform the RWI insurer of breaches that erode the deductible and breaches that are expected to result in loss payments under the RWI policy, and some RWI policies also required notice of facts or circumstances that may result in such breaches. Once a claim is made against an RWI policy, the RWI insurer will typically review the claim to determine whether a covered breach occurred, whether any such breach resulted in covered loss and the amount of any such loss. To some extent, the insurer’s claim review process can be thought of as similar to the process that sellers or a sell-side representative or advisor would perform with respect to indemnification claims received from a buyer in a deal with no RWI.

What are the benefits and drawbacks of escrows versus RWI?

Escrows and RWI are alternative means of collateralizing sellers’ indemnification obligations. The primary benefits and drawbacks of using escrows versus using RWI are summarized below.

  • Guaranteed source of indemnification collateral for the buyer.
  • Fast and easy to set up, with little or no out-of-pocket cost.
  • No need for underwriting or the involvement of a third-party insurer in deal negotiations.
  • The buyer and sellers negotiate directly (or through a seller representative or advisor) when claims arise.
  • The sellers’ proceeds used to fund the escrow are at risk of indemnification claims.
  • The sellers lose the use of escrowed proceeds during the escrow period.
  • Escrow deposits generally earn a lower yield than what an institutional investor may expect to earn by investing such capital pursuant to an investment strategy.
  • A buyer willing to use buy-side RWI in lieu of a standard holdback or escrow arrangement can enhance their bid since the sellers will receive a greater proportion of the purchase price at closing and will have lower indemnification risk.
  • Using insurance proceeds to fund indemnification claim payments may protect relationships between buy-side parties during the deal negotiation stage and post-closing.
  • Enhances sellers’ IRR where RWI negates the need for an escrow (in buy-side RWI policies) or for contingency reserves (in sell-side RWI policies above the escrow), maximizing sellers’ distributable proceeds at closing.
  • Adds additional certainty to the purchase price received by sellers.
  • Allows sellers to exit with less risk of a clawback (in sell-side RWI policies above the escrow).
  • Reduces credit risk borne by the buyer for coverage that applies above the holdback or escrow.
  • The insurance premium is an additional cost.
  • The insurance underwriting process may add complexity and time.
  • The RWI policy may have material exclusions, but specific holdbacks or escrows, or a separate insurance policy, may alleviate this concern.
  • Claims must be negotiated with the insurer.
  • A series of material claims by a buyer against an RWI policy may impact that buyer’s future RWI pricing (i.e., the buyer’s perceived risk profile), but even a buyer that pursues multiple indemnification claims against sellers directly may find themselves labeled litigious or overly aggressive in the M&A community.
  • Buyers tend to be more aggressive in making claims against an RWI policy as opposed to the sellers directly, potentially eating into coverage amounts more quickly.

Is RWI the right tool for your business?

RWI is a tool to potentially allocate risk and increase the amount payable to sellers at the time of closing, and it may even be the key to winning a competitive bid. Whether RWI or an escrow is the right tool for your M&A deal ultimately depends on the circumstances. In making this decision, it is critical to engage a neutral, experienced advisor you can trust since the optimal tool may change as the M&A deal evolves and since the best tool for one M&A deal may not be the best tool for another M&A deal.

Senior Director, Thought Leadership tel:720-452-5364

Kip Wallen is a senior director leading the SRS Acquiom thought leadership practice. He leverages his extensive expertise and SRS Acquiom proprietary data to produce resourceful content regularly utilized by market practitioners. Kip has broad experience in M&A and provides guidance on market standards and trends.

Previously, Kip was a Director with the SRS Acquiom Transactional Group, where he collaborated with clients and counsel to negotiate M&A documents including purchase, escrow, payments, and other transactional agreements. Before joining SRS Acquiom, Kip was an attorney with a Denver-based boutique business law firm where he assisted clients with M&A transactions as well as general corporate governance and securities matters.

Kip is an avid supporter of the Colorado Symphony, serving on the Associate Board and Colorado Symphony Fund Board, and the Colorado Rockies. He is an active participant on the American Bar Association’s M&A Committee. In 2016, Kip completed Leadership 20 with the Denver chapter of the Association for Corporate Growth.

Kip received his J.D. from the Sturm College of Law at the University of Denver and an M.S. in Economics, B.S. in Economics and B.A. in International Relations from Lehigh University. He is a member of the Colorado bar.

Gain the SRS Acquiom edge on your next deal.

Get in Touch

Collateral Assignment

Jump to section.

A collateral assignment involves granting a security interest in the asset or property to a lender. It is a lawful arrangement where the borrower promises an asset or property to the lender to guarantee the debt repayment or meet a financial obligation. Moreover, in a collateral assignment, the borrower maintains asset ownership, the lender holds the security interest, and the lender has the right to seize and sell the asset in event of default. This blog post will discuss a collateral assignment, its purpose, essential considerations, and more.

Key Purposes of a Collateral Assignment

Collateral assignment concerns allocating a property's ownership privileges, or a specific interest, to a lender as loan collateral. The lender retains a security interest in the asset until the borrower entirely settles the loan. If the borrower defaults on loan settlement, the lender can seize and market the collateral to recover the unpaid debt. Below are the key purposes of a collateral assignment.

  • Enhanced Lender Protection: The primary purpose of the collateral assignment is to provide lenders with an added layer of security and assurance. Also, by maintaining a claim on the borrower's properties, lenders lower their risk and improve the probability of loan settlement. In case of default, the lender can sell the collateral to recover the unpaid balance. This security authorizes lenders to offer loans with lower interest rates, as the threat associated with the loan is reduced.
  • Favorable Loan Terms: Collateral assignment allows borrowers to access financing on more favorable terms than unsecured loans . However, the terms of the loan will vary depending on the borrower’s creditworthiness and the value of the collateral. Generally, lenders are more willing to extend larger loan amounts and lower interest rates when they have collateral to fall back on. The presence of collateral reassures lenders that they have a viable means of recouping their investment, even in case of default. This increased confidence often leads to more competitive loan offers for borrowers.
  • Unlocking Asset Value: Collateral assignment enables borrowers to leverage the value of their assets, even if those assets are not readily convertible into cash. For instance, a business owner with valuable machinery can assign it as collateral to secure a business loan. This arrangement allows the borrower to continue utilizing the asset for operational purposes while accessing the necessary funds for expansion or working capital. Collateral assignment, thus, enables the efficient allocation of resources. However, the collateral will still be considered in determining the loan amount and terms.
  • Access to Higher Loan Amounts: When borrowers promise collateral against a loan, lenders can present greater loan amounts than for other unsecured loans. The worth of the collateral serves as a reassurance to lenders that they can recover their investment even if the borrower fails to settle the loan. Therefore, borrowers can obtain higher loans to finance important endeavors such as purchasing property, starting a business, or funding major projects.
  • Diversification of Collateral: Collateral assignment offers flexibility for borrowers by allowing them to diversify their collateral base. While real estate is commonly used as collateral, borrowers can utilize other valuable assets such as investment portfolios, life insurance policies, or valuable personal belongings. This diversification allows borrowers to access financing without limiting themselves to a single asset, thereby preserving their financial flexibility.

Steps to Execute a Collateral Assignment

A collateral assignment is a financial procedure that involves utilizing an asset as security for a loan or other responsibilities. Below are the essential steps involved in the collateral assignment process.

  • Assess the Need for Collateral Assignment. The initial step in collateral assignment is determining whether collateral is necessary. Lenders or creditors may require collateral to mitigate the risk of default or ensure repayment. Evaluating the value and marketability of the proposed collateral is crucial to ascertain if it meets the lender's requirements.
  • Select Appropriate Collateral. The next step involves choosing a suitable asset for collateral assignment. Common classifications of collateral comprise stocks, real estate, bonds, cash deposits, and other valuable assets. The collateral's value should be sufficient to cover the loan amount or the obligation being secured.
  • Understand Lawful and Regulatory Requirements. Before proceeding with collateral assignment, it is essential to comprehend the lawful and regulatory provisions specific to the jurisdiction where the transaction happens. Collateral assignment laws can vary, so seeking advice from legal professionals experienced in this area is advisable to ensure compliance.
  • Negotiate Provisions. Once the collateral is recognized, the collateral assignment provisions must be negotiated among the concerned parties. It includes specifying the loan amount, interest rates, repayment terms, and any further duties or limitations associated with the collateral assignment.
  • Prepare the Collateral Assignment Agreement. The collateral assignment agreement is a lawful document that typically includes details about the collateral, the loan or obligation being secured, and the rights and responsibilities of both parties. It is highly advised to engage the services of a legal specialist to prepare or review the contract.
  • Enforce the Collateral Assignment Agreement. After completing the collateral assignment agreement, it must be executed by all involved parties. This step ensures that all necessary signatures are obtained and copies of the agreement are distributed to each individual for record-keeping objectives.
  • Notify Relevant Parties. To ensure proper recognition and recording of the collateral assignment, it is important to notify all relevant parties. It may involve informing the lender or creditor, the custodian or holder of the collateral, and any other pertinent stakeholders. Sufficient documentation and communication will help prevent potential disputes or misunderstandings.
  • Record the Collateral Assignment. Depending on the nature of the collateral, it may be necessary to record the collateral assignment with the appropriate government authority or registry. This step provides public notice of the assignment and establishes priority rights in case of multiple claims on the same collateral. Seeking guidance from legal professionals or relevant authorities can determine if recording the collateral assignment is required.
  • Monitor and Maintain the Collateral. Throughout the collateral assignment term, it is crucial to monitor and maintain the value and condition of the collateral. This includes ensuring insurance coverage, property maintenance, and compliance with any ongoing obligations associated with the collateral. Regular communication between all parties involved is essential to address concerns or issues promptly.
  • Terminate the Collateral Assignment. Once the loan or obligation secured by the collateral is fully satisfied, the collateral assignment can be terminated. This involves releasing the collateral from the assignment, updating relevant records, and notifying all parties involved. It is important to follow proper procedures to ensure the appropriate handling of the legal and financial aspects of the termination.

collateral assignment of rwi

Key Terms for Collateral Assignments

  • Security Interest: It is the legal right granted to a lender over the assigned collateral to protect their interests in case of borrower default.
  • Collateral Valuation: The process of determining the worth or market value of the assigned collateral to assess its adequacy in securing the loan.
  • Release of Collateral: The action taken by a lender to relinquish its claim over the assigned collateral after the borrower has fulfilled the loan obligations.
  • Subordination Agreement : A legal document that establishes the priority of multiple creditors' claims over the same collateral, typically in the case of refinancing or additional loans.
  • Lien : A legal claim or encumbrance on a property or asset, typically created through a collateral assignment, that allows a lender to seize and sell the collateral to recover the loan amount.

Final Thoughts on Collateral Assignments

A collateral assignment is a valuable instrument for borrowers and lenders in securing loans or obligations. It offers borrowers access to profitable terms and more extensive loan amounts while reducing the risk for lenders. Nevertheless, it is essential for borrowers to thoughtfully assess the terms and threats associated with collateral assignment before proceeding. Seeking professional guidance and understanding the contract can help ensure a successful and beneficial financial arrangement for all parties involved.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

Meet some of our Collateral Assignment Lawyers

Dean F. on ContractsCounsel

Ferraro Law Firm was founded by Dean C. Ferraro. Dean earned his Bachelor's Degree from California State Polytechnic University, Pomona ("Cal Poly Pomona") in 1992 and his J.D. Degree from the University of Mississippi School of Law ("Ole Miss") in 1996. He is licensed to practice law in the State Courts of Colorado, Tennessee, and California. Dean is also admitted to practice before the United States District Courts of Colorado (District of Colorado), California (Central District), and Tennessee (Eastern District). Shortly after earning his law license and working for a private law firm, Dean joined the District Attorney's office, where he worked for five successful years as one of the leading prosecuting attorneys in the State of Tennessee. After seven years of practicing law in Tennessee, Dean moved back to his birth state and practiced law in California from 2003-2015. In 2015, Dean moved with his family to Colorado, practicing law in beautiful Castle Rock, where he is recognized as a highly-effective attorney, well-versed in many areas of law. Dean's career has entailed practicing multiple areas of law, including civil litigation with a large law firm, prosecuting criminal cases as an Assistant District Attorney, In-House Counsel for Safeco Insurance, and as the founding member of an online law group that helped thousands of people get affordable legal services. Pursuing his passion for helping others, Dean now utilizes his legal and entrepreneurial experience to help his clients in their personal and business lives. Dean is also a bestselling author of two legal thrillers, Murder in Santa Barbara and Murder in Vail. He currently is working on his next legal thriller, The Grove Conspiracy, set to be published in 2023.

Jason P. on ContractsCounsel

Jason is a self-starting, go-getting lawyer who takes a pragmatic approach to helping his clients. He co-founded Fortify Law because he was not satisfied with the traditional approach to providing legal services. He firmly believes that legal costs should be predictable, transparent and value-driven. Jason’s entrepreneurial mindset enables him to better understand his clients’ needs. His first taste of entrepreneurship came from an early age when he helped manage his family’s small free range cattle farm. Every morning, before school, he would deliver hay to a herd of 50 hungry cows. In addition, he was responsible for sweeping "the shop" at his parent's 40-employee HVAC business. Before becoming a lawyer, he clerked at the Lewis & Clark Small Business Legal Clinic where he handled a diverse range of legal issues including establishing new businesses, registering trademarks, and drafting contracts. He also spent time working with the in-house team at adidas® where, among other things, he reviewed and negotiated complex agreements and created training materials for employees. He also previously worked with Meriwether Group, a Portland-based business consulting firm focused on accelerating the growth of disruptive consumer brands and facilitating founder exits. These experiences have enabled Jason to not only understand the unique legal hurdles that can threaten a business, but also help position them for growth. Jason's practice focuses on Business and Intellectual Property Law, including: ​ -Reviewing and negotiating contracts -Resolving internal corporate disputes -Creating employment and HR policies -Registering and protecting intellectual property -Forming new businesses and subsidiaries -Facilitating Business mergers, acquisitions, and exit strategies -Conducting international business transactions ​​ In his free time, Jason is an adventure junkie and gear-head. He especially enjoys backpacking, kayaking, and snowboarding. He is also a technology enthusiast, craft beer connoisseur, and avid soccer player.

David W. on ContractsCounsel

Founder David W. Weygandt, the Singing Lawyer, is passionate about helping families and businesses stay in tune with what they care about and avoid conflict. When injustice has been done, David is proud to stand up to the modern Goliath and vindicate your rights on your behalf. David lives and practices law in The Woodlands, Texas, and assists clients all across Texas.

Nicole P. on ContractsCounsel

Attorney Nicole B. Phillips is a northwestern Iowa native and devotes her practice to the area of Family Law. She is an experienced trial attorney with over 12 years of family law experience. ​ Nicole graduated from The University of South Dakota with a degree in Criminal Justice, and attended Oklahoma City University School of Law to obtain her law degree. Prior to establishing Phillips Law Firm, P.C., Nicole built her first successful law practice in Oklahoma City, Oklahoma, where she focused on Family Law, Estate Planning and Personal Injury Law, and her second successful law practice in Sherman, Texas, focusing primarily on Family Law. ​ Nicole has one daughter, Arabella. In addition to enjoying time with her daughter, Nicole enjoys reading, family dinners, traveling, spending time with friends, and game nights.

Ari G. on ContractsCounsel

Ari is a transactional attorney with substantial experience serving clients in regulated industries. He has worked extensively with companies in regulated state cannabis markets on developing governance documents (LLC operating agreements, corporate bylaws, etc...), as well as drafting and negotiating all manner of business and real estate contracts.

Jessica F. on ContractsCounsel

I'm a knowledgable and experienced New York licensed attorney with strong contract drafting and negotiation skills, a sophisticated business acumen, and a background working in entertainment and technology law.

Evan F. on ContractsCounsel

I am the Founding Member of Evan Ficaj Law Firm PLLC, and I am passionate about helping businesses launch, grow, and succeed. My law firm assists clients with business, contract, entertainment, IP, and estate planning matters.

Find the best lawyer for your project

How it works.

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Financial lawyers by top cities

  • Austin Financial Lawyers
  • Boston Financial Lawyers
  • Chicago Financial Lawyers
  • Dallas Financial Lawyers
  • Denver Financial Lawyers
  • Houston Financial Lawyers
  • Los Angeles Financial Lawyers
  • New York Financial Lawyers
  • Phoenix Financial Lawyers
  • San Diego Financial Lawyers
  • Tampa Financial Lawyers

Collateral Assignment lawyers by city

  • Austin Collateral Assignment Lawyers
  • Boston Collateral Assignment Lawyers
  • Chicago Collateral Assignment Lawyers
  • Dallas Collateral Assignment Lawyers
  • Denver Collateral Assignment Lawyers
  • Houston Collateral Assignment Lawyers
  • Los Angeles Collateral Assignment Lawyers
  • New York Collateral Assignment Lawyers
  • Phoenix Collateral Assignment Lawyers
  • San Diego Collateral Assignment Lawyers
  • Tampa Collateral Assignment Lawyers

related contracts

  • Accredited Investor Questionnaire
  • Adverse Action Notice
  • Bridge Loan
  • Bridge Loan Contract
  • Commercial Loan
  • Convertible Bonds
  • Convertible Note
  • Convertible Preferred Stock
  • Cumulative Preferred Stock
  • Custodial Agreement

other helpful articles

  • How much does it cost to draft a contract?
  • Do Contract Lawyers Use Templates?
  • How do Contract Lawyers charge?
  • Business Contract Lawyers: How Can They Help?
  • What to look for when hiring a lawyer

collateral assignment of rwi

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

  • Search Search Please fill out this field.
  • Life Insurance

What Is Collateral Assignment (of a Life Insurance Policy)?

Meredith Mangan is a senior editor for The Balance, focusing on insurance product reviews. She brings to the job 15 years of experience in finance, media, and financial markets. Prior to her editing career, Meredith was a licensed financial advisor and a licensed insurance agent in accident and health, variable, and life contracts. Meredith also spent five years as the managing editor for Money Crashers.

collateral assignment of rwi

Definition and Examples of Collateral Assignment

How collateral assignment works, alternatives to collateral assignment.

Kilito Chan / Getty Images

If you assign your life insurance contract as collateral for a loan, you give the lender the right to collect from the policy’s cash value or death benefit in two circumstances. One is if you stop making payments; the other is if you die before the loan is repaid. Securing a loan with life insurance reduces the lender’s risk, which improves your chances of qualifying for the loan.

Before moving forward with a collateral assignment, learn how the process works, how it impacts your policy, and possible alternatives.

Collateral assignment is the practice of using a life insurance policy as collateral for a loan . Collateral is any asset that your lender can take if you default on the loan.

For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral. If you have a permanent life insurance policy with a cash value of $40,000 and a death benefit of $300,000, you could use that life insurance policy to collateralize the loan. Via collateral assignment of your policy, you authorize the insurance company to give the lender the amount you owe if you’re unable to keep up with payments (or if you die before repaying the loan).

Lenders have two ways to collect under a collateral assignment arrangement:

  • If you die, the lender gets a portion of the death benefit—up to your remaining loan balance.
  • With permanent insurance policies, the lender can surrender your life insurance policy in order to access the cash value if you stop making payments.

Lenders are only entitled to the amount you owe, and are not generally named as beneficiaries on the policy. If your cash value or the death benefit exceeds your outstanding loan balance, the remaining money belongs to you or your beneficiaries.

Whenever lenders approve a loan, they can’t be certain that you’ll repay. Your credit history is an indicator, but sometimes lenders want additional security. Plus, surprises happen, and even those with the strongest credit profiles can die unexpectedly.

Assigning a life insurance policy as collateral gives lenders yet another way to secure their interests and can make approval easier for borrowers.

Types of Life Insurance Collateral

Life insurance falls into two broad categories: permanent insurance and term insurance . You can use both types of insurance for a collateral assignment, but lenders may prefer that you use permanent insurance.

  • Permanent insurance : Permanent insurance, such as universal and whole life insurance, is lifelong insurance coverage that contains a cash value. If you default on the loan, lenders can surrender your policy and use that cash value to pay down the balance. If you die, the lender has a right to the death benefit, up to the amount you still owe.
  • Term insurance : Term insurance provides a death benefit, but coverage is limited to a certain number of years (20 or 30, for example). Since there’s no cash value in these policies, they only protect your lender if you die before the debt is repaid. The duration of a term policy used as collateral needs to be at least as long as your loan term.

A Note on Annuities

You may also be able to use an annuity as collateral for a bank loan. The process is similar to using a life insurance policy, but there is one key difference to be aware of. Any amount assigned as collateral in an annuity is treated as a distribution for tax purposes. In other words, the amount assigned will be taxed as income up to the amount of any gain in the contract, and may be subject to an additional 10% tax if you’re under 59 ½.

A collateral assignment is similar to a lien on your home . Somebody else has a financial interest in your property, but you keep ownership of it.

The Process

To use life insurance as collateral, the lender must be willing to accept a collateral assignment. When that’s the case, the policy owner, or “assignor,” submits a form to the insurance company to establish the arrangement. That form includes information about the lender, or “assignee,” and details about the lender’s and borrower’s rights.

Policy owners generally have control over policies. They may cancel or surrender coverage, change beneficiaries, or assign the contract as collateral. But if the policy has an irrevocable beneficiary, that beneficiary will need to approve any collateral assignment.

State laws typically require you to notify the insurer that you intend to pledge your insurance policy as collateral, and you must do so in writing. In practice, most insurers have specific forms that detail the terms of your assignment.

Some lenders might require you to get a new policy to secure a loan, but others allow you to add a collateral assignment to an existing policy. After submitting your form, it can take 24 to 48 hours for the assignment to go into effect.

Lenders Get Paid First

If you die and the policy pays a death benefit , the lender receives the amount you owe first. Your beneficiaries get any remaining funds once the lender is paid. In other words, your lender takes priority over your beneficiaries when you use this strategy. Be sure to consider the impact on your beneficiaries before you complete a collateral assignment.

After you repay your loan, your lender does not have any right to your life insurance policy, and you can request that the lender release the assignment. Your life insurance company should have a form for that. However, if a lender pays premiums to keep your policy in force, the lender may add those premium payments (plus interest) to your total debt—and collect that extra money.

There may be several other ways for you to get approved for a loan—with or without life insurance:

  • Surrender a policy : If you have a cash value life insurance policy that you no longer need, you could potentially surrender the policy and use the cash value. Doing so might prevent the need to borrow, or you might borrow substantially less. However, surrendering a policy ends your coverage, meaning your beneficiaries will not get a death benefit. Also, you’ll likely owe taxes on any gains.
  • Borrow from your policy : You may be able to borrow against the cash value in your permanent life insurance policy to get the funds you need. This approach could eliminate the need to work with a traditional lender, and creditworthiness would not be an issue. But borrowing can be risky, as any unpaid loan balance reduces the amount your beneficiaries receive. Plus, over time, deductions for the cost of insurance and compounding loan interest may negate your cash value and the policy could lapse, so it’s critical to monitor.
  • Consider other solutions : You may have other options unrelated to a life insurance policy. For example, you could use the equity in your home as collateral for a loan, but you could lose your home in foreclosure if you can’t make the payments. A co-signer could also help you qualify, although the co-signer takes a significant risk by guaranteeing your loan.

Key Takeaways

  • Life insurance can help you get approved for a loan when you use a collateral assignment.
  • If you die, your lender receives the amount you owe, and your beneficiaries get any remaining death benefit.
  • With permanent insurance, your lender can cash out your policy to pay down your loan balance.
  • An annuity can be used as collateral for a loan but may not be a good idea because of tax consequences.
  • Other strategies can help you get approved without putting your life insurance coverage at risk.

NYSBA. " Life Insurance and Annuity Contracts Within and Without Tax Qualified Retirement Plans and Life Insurance Trusts ." Accessed April 12, 2021.

IRS. " Publication 575 (2020), Pension and Annuity Income ." Accessed April 12, 2021.

Practical Law. " Security Interests: Life Insurance Policies ." Accessed April 12, 2021.

  • Search Search Please fill out this field.
  • Life Insurance
  • Definitions

What Is a Collateral Assignment of Life Insurance?

collateral assignment of rwi

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

collateral assignment of rwi

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

  • The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
  • The collateral assignment helps you avoid naming a lender as a beneficiary.
  • The collateral assignment may be against all or part of the policy's value.
  • If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
  • Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

collateral assignment of rwi

  • Terms of Service
  • Editorial Policy
  • Privacy Policy
  • Your Privacy Choices

Policygenius does not allow the submission of personal information by users located within the EU or the UK. If you believe this action is in error, or have any questions, please contact us at [email protected]

collateral assignment of rwi

Risk Management

Capital markets.

collateral assignment of rwi

Ariel Tavor

Keith yagnik, ariel serber, michael kikoz.

collateral assignment of rwi

Life Insurance Quote Tool

See the he numbers and the numbers behind the numbers — all policy valuations, underwriting, cost and returns — so you can make an informed decision for your financial future.

collateral assignment of rwi

Life Settlement Calculator

Maximize the value of your life insurance policy with our life settlement calculator. Explore the policy valuations, underwriting assessments, costs, and potential returns, including the numbers behind the numbers.

  • (212) 548-6201

Guidelines for Collateral Assignment of Life Insurance

  • By: Risk Management Team

Lions Financial provides comprehensive guidelines for the collateral assignment of life insurance. The collateral assignment involves using a life insurance policy as collateral for a loan or debt. Lions Financial assists individuals and businesses in understanding the process and implications of collateral assignment, ensuring they make informed decisions.

The guidelines cover important aspects such as determining the policy’s cash surrender value, establishing the assignment amount, and defining the rights and responsibilities of the assignee and assignor. Lions Financial also helps clients navigate legal and tax considerations related to collateral assignment.

Banks require insurance for collateral assignment so that they can always get any outstanding loan amount back if the loaner defaults or dies before being able to pay the loan back.

Collateral is pledged as security for repayment of a loan, to be forfeited in the event of a default. A collateral assignment of insurance is a conditional assignment appointing a lender as the primary beneficiary of a benefit to use as collateral for a loan. If the borrower is unable to pay, the lender can cash in the insurance policy and recover what is owed.

An Absolute assignment in insurance involves signing over your entire policy to another person or entity. The person who is selling or gifting the policy is known as the assignor, and the individual or individuals who receive it are the assignee. The assignee takes full ownership of the policy, being held liable for any premiums and also having the authority to change or designate new beneficiaries.

Collateral assignment of life insurance essentially works like a standard loan. The insurance policy is “collateral” for a loan, and the person or organization that pays out that loan is the temporary beneficiary of the policy’s death benefit until the loan is repaid. The entity taking over the policy does so on a conditional basis and, therefore, doesn’t have the authority to make changes to it, re-sell it or take any of its cash value. Instead, the assignee can only draw on the death benefit if the policyholder defaults.

On the other hand, Collateral Assignment enables policy holders to regain control of their own policy once a medical or other crisis has resolved. It is one of the 3 common ways to borrow from your life insurance policy and access the cash value. With a collateral assignment, you are able to eventually benefit again from the long-term advantages of a life insurance policy.

If one already has a life insurance policy with a face value greater than the loan amount, he can collaterally assign that policy by requesting the paperwork from the insurer. If one doesn’t have a life insurance policy or needs additional coverage, he will need to apply for life insurance and go through underwriting.

Whether one has a term life insurance policy or a whole life insurance policy, he will be the policy owner and responsible for the premium payments. The borrower must be the owner of the policy but not necessarily the insured, and the policy must remain current for the life of the loan with the owner continuing to pay all necessary premiums.

Any type of life insurance policy is acceptable for collateral assignment, provided the insurance company allows assignment for the policy. Some banks may require an escrow account for the life insurance premiums, others may require proof of premiums paid or prepaid.

If one has a whole life policy that he uses for collateral assignment, banks will have access to the cash value of the policy if he defaulted on the loan. If the loaner dies, the insurance company will use the death benefit to pay off any outstanding loan amount. The rest, if any, goes to the assigned beneficiaries.

Insurance companies must be notified of the collateral assignment of a policy. When one is applying for life insurance for the purpose of collateral assignment, he will name his beneficiaries as he would for a personal policy. The bank is not his beneficiary, but the assignee on the collateral assignment after the policy is in force. On the form, he will be the assignor.

There are several reasons to consider a collateral assignment of life insurance. The Collateral assignment guarantees the safety of the amount that was loaned out to the lender, especially under the listed terms and conditions that the lender will be paid in full; moreover, the remaining will be given to the listed beneficiaries in the case of death of the borrower.

  • It safeguards the interests of the lender. A collateral assignment plays a critical role in securing a loan for the borrower. It is the insurance company’s obligation to safeguard the lender’s interest after collecting the collateral assignment form.
  • A collateral assignment allows you to be more flexible with your capital assets.
  • A collateral assignment allows the borrower to purchase insurance as a low-cost collateral to secure paying back a loan.

A collateral assignment has great advantages, but it has certain limitations as well. First of all, a collateral assignment has a limited death benefit. You should assign part of the death benefits as collateral instead of the total benefits which avoids the circumstances where the lender claims all the death benefits after you die.

  • Difficulty in obtaining an affordable insurance policy with low premiums.
  • Loss of policy control is another disadvantage of collateral assignment.
  • Collateral assignment suffers from the limited use of cash value.

Any type of life insurance policy is acceptable for collateral assignment, provided the insurance company allows assignment for the policy.

Some examples of insurance policies you can use for collateral assignment are:

  • Term Insurance

Term life insurance is used to offer coverage for a specific number of years. The proceeds of the policy are only paid out after the insurer dies, and it lacks equity and a surrender value. It falls under the category of the most affordable insurance plans which is why it is a top pick for most people.

You don’t need to buy a plan that exceeds or falls below your needs. Term life insurance enables you to purchase a plan tailored to your needs and since it is not permanent, you are going to pay low premiums.

  • Universal Life Insurance or Whole Life Insurance

With universal life insurance, you will be able to design the insurance policy according to how you want it. The insurance proceeds are usually released when the insured party dies. It is great for individuals looking for a permanent insurance policy that never expires unless you are dead. In short, you will continue to receive coverage as long as the annual premiums are getting paid.

On the downside, universal life insurance policies tend to be expensive because they are meant to offer life term coverage.

On the bright side, the policies build cash value and the longer the premiums are paid,  the more value the plan will build. This cash value can be used on other investments or to pay off the outstanding premiums.

When applying for a collateral assignment of life insurance, you can use two ways to do so: through the bank or through your insurer. The two are explained further below;

  • APPLYING THROUGH YOUR BANK

There are some lenders who will consider using your existing life insurance policy for collateral assignment if you request it, but others might require you to take out a brand-new policy specifically  for that purpose.

In either case, using life insurance for collateral assignment when applying for loans is a fairly common practice that almost every life insurance company and the bank is equipped to handle.

You start off the application for assignment by securing the loan with the bank in question. This is where you will discover the limitations and regulations the bank has regarding the collateral assignment of life insurance. Each lender has different policies.

  • APPLYING THROUGH YOUR INSURER

Once you have found the right loan, you must fill out the collateral assignment form. Your insurer will be able to provide you with this form easily.

The form has to be filled out by every party involved, including yourself, the lender, and the insurance company. You can sign the forms at the time of your loan application or you can sign them after your policy has been issued.

If you are taking out a brand-new life insurance policy, you are better off signing all of the documents for this at the beginning of the application. The time frame to request a collateral assignment and be accepted for it ranges between 24 hours and 48 hours.

Some banks might require that you notarize the form, which can add some time to the application and acceptance process

  There are several essential parts to be included in the collateral assignment forms.

1.  Policy Identification

This part focuses on the information of the insured, including policy numbers, owner’s first and last names, address, phone number, and email address.

2. Assignee information:

This part contains information about the assignee. The assignee could be an individual, corporate entity or trust. If the assignee is a Trust, he/she ought to list out all the names of currently serving trustees.

parts of collateral Assignments

Moreover, this part should include the assignee’s full legal name, address, tax ID, email address, and phone number. 3. Terms and conditions: This section lists all the terms and conditions of the assignment. To be specific, this section covers in detail the rights, for instance, “the sole right to collect from the Insurer the net proceeds of the policy, the sole right to obtain one or more loans or advances on the Policy”, etc. Moreover, this section might also include IRS certification to certify the taxpayer identification number filed in the previous sections are authentic and correct.

4. Signatures: All owners and assignees are required to sign and date in this section after reviewing the previous terms and conditions. Moreover, beneficiaries are also required to sign this form. 5. Submission of the assignment form: After careful revision of terms and conditions of the assignment and signature, the assignment form should be submitted for processing. This part should list detailed instructions for sending back the assignment form. Moreover, this part should also provide the address, contact information, and the fax number of the company who issued the policy.

You apply for a life insurance policy and name your beneficiary (your spouse, children, whomever). Just as you normally would. After the policy goes into force, a collateral assignment form from the life insurance company will be sent for you to complete. When a life insurance company sets a collateral assignment of life insurance, this usually takes in the region of seven to ten days to be filed and acknowledged. However we may expedite this if the collateral assignment is required more urgently.  When taking out life insurance at the same time as assigning the collateral, the collateral assignment form must be submitted with the life insurance application. You get the collateral assignment form signed (some companies require a notarized signature). It will take a few days to a few weeks for the life insurance company to acknowledge the assignment. Once the loan has been paid in full, the assignment must be lifted from the policy by means of a release form sent by the lender to the insurance company. When it receives the release, the insurance company cancels the assignment and restores all rights in the policy to the owner. A collateral assignment allows the life insurance company to pay your SBA lender only what they are owed and the rest goes to your beneficiary. As you pay down the loan, the amount of coverage will be more than you need, and a collateral assignment form makes sure the lender is only paid what is needed. If you named the lender as the beneficiary, the lender would receive the entire death benefit even though you’ve paid down the balance. And if you did that, the life insurance company wouldn’t issue you the amount of coverage needed – they’ll typically only issue 80% of the loan amount. So, it’s imperative that you use a collateral assignment. The Collateral Assignment of Life Insurance is a way to secure funding for business or other ventures. It is important to understand the different types of assignments and how they work before choosing this option.  At Lions Financial, we offer a variety of services and resources to help businesses secure funding and protect their assets. 

To learn more about these services, sign up for our newsletters or make an appointment with a representative today!   Contact us at https://lions.financial/contact/   Learn more, visit:   What Are the Tax Considerations For Life Insurance Premiums Under Collateral Assignment For Business Bank Loans     Should You Consider An Asset-Based Loan For Your Business   Process For A Business To File a Life Insurance Claim   Life Insurance Requirements for SBA Loans    Life Insurance Requirements when getting an SBA Loan The sources we use for this information include: https://www.investopedia.com/terms/c/collateral.asp   https://www.investopedia.com/terms/l/lender.asp   https://www.investopedia.com/terms/b/beneficiary.asp  

Risk Management Team

View all posts

Framing Entity BuySell Agreement Insurance for Business Owners

From financial management to sales, every business operation is paramount. Similarly, ensuring that the enterprise keeps thriving uninterruptedly also needs attention. Business leaders leverage their

Life Insurance Requirements When Getting an SBA Loan

Life Insurance Requirements When Getting an SBA Loan

  As a business owner, you are required to purchase life insurance as part of a loan agreement. This life insurance policy will serve as

The Imperative Of Due Diligence In Mergers And Acquisitions: Navigating Success With Lions Financial

The Imperative of Due Diligence in Mergers and Acquisitions: Navigating Success with Lions Financial

In the corporate realm, mergers and acquisitions (M&A) are akin to the high-stakes world of chess. One wrong move can spell disaster. Therefore, due diligence,

Why You Should Hire a Financial Advisory for Due Diligence: Unlocking the Power of Expertise and Efficiency

Why You Should Hire a Financial Advisory for Due Diligence: Unlocking the Power of Expertise and Efficiency

In the ever-evolving landscape of business acquisitions and financial endeavors, one thing remains constant: the critical importance of due diligence. Whether you are a seasoned

Schedule a call with us to get the assistance you need for your business!

Investment research analysis risk management jetblue airline, paycheck protection program loans frequently asked questions (faqs), risk management considerations for executives when preparing their company for an ipo, top 5 reasons a company should consider implementing a peo, copyright © 2023 | lions financial.

en_US

7 of MLB's biggest injuries ahead of Opening Day: Contenders enter 2024 short-handed

collateral assignment of rwi

Major League Baseball players hoping to cure what ails them by Opening Day are pretty much out of runway.

With the Los Angeles Dodgers and San Diego Padres opening play Wednesday in South Korea and all 30 teams teeing it up March 28, the languid days of spring are over. It’s officially a terrible time to get injured, with any significant ding more or less ensuring a player will miss time in games that count.

Sure, most of the looming absences aren’t as significant or extended as New York Yankees ace Gerrit Cole’s; he’ll be out into June with a vexing elbow injury. Yet as the exhibition season winds down, key players are succumbing or not recovering sufficiently to answer the opening bell.

A look at the more significant losses and delayed launches:

TJ Friedl, Reds: Wrist fracture

It’s not easy losing your leadoff hitter and center fielder less than two weeks before Opening Day. But Friedl’s non-displaced fracture in his right wrist, suffered while diving for a ball Saturday, will sideline him well into May. Friedl will be reevaluated in about three weeks.

HOT STOVE UPDATES: MLB free agency: Ranking and tracking the top players available.

It’s a key blow for a club harboring NL Central title hopes . Friedl produced a .352 OBP and 3.9 WAR in 2023. Will Benson figures to get the first crack at the temporary gig, but replacing a guy who produced both 17 bunt hits and 18 home runs a year ago is challenging.

Sonny Gray, Cardinals: Hamstring

The St. Louis Cardinals gave Sonny Gray a three-year, $75 million contract to anchor their rotation. Yet Gray will be sidelined for one of the most symbolic acts of that designation: Starting on Opening Day.

The club officially handed that assignment to veteran Miles Mikolas on Monday, one day after Gray threw a third bullpen session since suffering a hamstring strain on March 4. Gray threw 15 pitches and worked into a second simulated inning. Thursday, the club hopes he faces live batters for the first time.

Hey, it’s progress.

But as anticipated, it won’t allow for a significant ramp-up to make his Opening Day post in Los Angeles. The Cardinals have not yet placed Gray on the injured list, nor ruled him out for their opening two series in L.A. and San Diego, followed by their home opener on April 4.

Yet the progression must be respected, an annoying prospect both for Gray and Cardinals fans eager to unwrap their biggest free agent gift this winter.

Josh Lowe, Rays: Oblique strain

As the Tampa Bay Rays open their season at home against Toronto, outfielder Josh Lowe will simply be getting back to baseball activity. Lowe, who was primed for an All-Star campaign in 2024, suffered what the club is calling a “mild” strain of the right oblique.

While it could have been worse, it’s certainly a setback for a Rays club that was already thin on depth offensively. Lowe put together a saucy .292/.335/.500 line last year, ripping 20 homers in 466 at-bats, and at 26 was primed for a larger-scale breakout.

Barring further setbacks, Lowe should return sometime in April.

DJ LeMahieu, Yankees: Bone bruise

LeMahieu violated one of the cardinal rules of spring training: If you’re going to get banged up, do it before, say, Daylight Savings Time kicks in.

Alas, LeMahieu fouled a ball off his right foot Saturday and two days later, manager Aaron Boone said LeMahieu has a “pretty significant bone bruise” that may put him out of play for Opening Day.

The news wasn’t maximally grim: X-rays and a CT scan revealed no broken bone. Yet the bruise occurred on the same foot in which LeMahieu has suffered a broken big toe and torn ligaments in his second toe, the latter contributing to his subpar 2023 season.

Given that vigilance, an IL stint wouldn’t be a shocker. “We’re going to listen to the foot,” Boone told reporters in Tampa.

Kyle Bradish/John Means, Orioles: Waiting game

Remember these two guys? The Baltimore Orioles startled the industry on the first day of camp when they announced both starters were suffering from elbow maladies. Five weeks later, it’s mostly so far, so good.

Means has already faced hitters in live batting practice and is expected to stretch that to two innings of work in his next session this week. While it’s not certain the lefty will get into a Grapefruit League game, Means is on course to stretch out further in Sarasota and perhaps be ready for an April return.

Bradish, too, is progressing, but the immediate future remains uncertain. He was diagnosed in January with a sprain in the ulnar collateral ligament and underwent a platelet-rich plasma injection. He progressed well enough to throw his first bullpen session last week.

But every such session is merely a tentative step over a hurdle in a very deliberate ramp-up, with the best-case scenario that Bradish avoids Tommy John surgery. The Orioles will take a months-long absence in exchange for that.

Marlins pitchers: Infirm

Turns out reigning Cy Young Award winner Sandy Alcantara’s Tommy John surgery last fall was just the start of the Marlins’ pitching woes.

Edward Cabrera and left-hander Braxton Garrett have been shelved with a shoulder impingement and shoulder soreness, respectively. And most concerning: Right-hander Eury Perez was shut down with elbow soreness and is scheduled to undergo an MRI and travel to Texas for an exam with noted orthopedist Keith Meister.

All are unlikely to be available by Opening Day, and Perez’s plight will create frayed nerves in South Florida. The club treated him carefully last season, limiting him to 15 starts and 91 big league innings even as they badly needed pitching to lock down a wild-card berth. He struck out 10.6 batters per nine innings with a 3.15 ERA.

Justin Verlander, Astros: Shoulder

Talk about your moving parts.

Justin Verlander showed up to camp with a sore shoulder that kept him off the mound for a month, even as the 41-year-old expressed confidence it wasn’t a major issue.

He’s kept his word: Verlander threw his first bullpen session on March 14 and should graduate to facing live hitters later this week. He’s certainly ticketed for the IL to start the season, but his progression bears watching.

With Luis Garcia and Lance McCullers already out and the Astros still in a win-now stance, any Verlander hiccups might create more groundswell to augment the rotation from outside.

IMAGES

  1. Collateral Assignment Example 2005-2024 Form

    collateral assignment of rwi

  2. Collateral Assignment Form

    collateral assignment of rwi

  3. RWI set one mat

    collateral assignment of rwi

  4. Collateral Assignment Agreement

    collateral assignment of rwi

  5. RWI information for nursery parents

    collateral assignment of rwi

  6. Collateral assignment: Fill out & sign online

    collateral assignment of rwi

VIDEO

  1. Synthesis_verilog 2

  2. Caeser Response

  3. Operations Supervisor Interview Questions

  4. Dakhil 2021 Quran 7th Week Assignment-4|দাখিল ২০২১ কোরআন ৭ম সপ্তাহ অ্যাসাইনমেন্ট|

  5. Collateral Damages

  6. 3 Government Collateral Free Loans

COMMENTS

  1. PDF Insights

    There are four attributes of RWI that make it attractive for both buyers and lenders: (i) it may be used to extend the duration of indemnification coverage for breaches of representations and warranties beyond any time limit set forth in the acquisition agreement, (ii) it may increase the scope of matters to be indemnified under the acquisition ...

  2. Senior Lender Considerations in Respect of Representation and ...

    There are four attributes of RWI that make it attractive for both buyers and lenders: (i) it may be used to extend the duration of indemnification coverage for breaches of representations and warranties beyond any time limit set forth in the acquisition agreement, (ii) it may increase the scope of matters to be indemnified under the acquisition ...

  3. PDF Representations and Warranties Insurance in M&A Transactions

    an acquisition agreement. RWI policies typically also provide coverage for losses resulting from breaches of the sellers' indemnities for pre-closing taxes of the target company, or if the acquisition agreement doesn't provide for such indemnities, the RWI policy will provide a "synthetic" indemnity for such taxes.

  4. Representation and Warranty Insurance and the Collateral Source Rule

    When an RWI policy provides coverage, sellers may attempt to offset their obligations to buyers by amounts paid by the R&W insurers. Likewise, R&W insurers may attempt to do the same for post ...

  5. M&A Trends: Representations And Warranties Insurance

    RWI policies had high premiums and retention amounts with broad exclusions, required long lead time by the insurers to complete their due diligence and underwriting processes and came with a general uncertainty as to whether insurers would actually pay out on claims.

  6. Representations and Warranties Insurance in M&A Transactions

    Under a buy-side representations and warranties insurance ("RWI") policy, the buyer in an M&A transaction recovers directly from an insurer for losses arising from certain breaches of the seller's representations and warranties in the acquisition agreement.

  7. PDF The Rise Of Reps And Warranties Insurance In Upstream M&A

    However, RWI policies tailored for Section 363 sales can create a win-win for buyers and sellers. The buyer will have a remedy for breaches of representations and warranties — ... provision in the assignment or conveyance of the oil and gas properties and is often worded: Assignor does hereby bind itself to warrant and forever defend, all and ...

  8. PDF Representations and Warranties Insurance

    Representations and warranties insurance ("RWI") is an increasingly popular way to allocate risk in merger and acquisi-tions ("M&A") transactions by transferring it away from buy-ers and sellers to insurers, who agree to indemnify buyers for breaches of representations and warranties.1 It is becoming an important component on many deals, and in...

  9. Assessing the Value of Representations and Warranty insurance

    RWI can help facilitate the closing of a transaction in several different ways. Either a buyer or seller can purchase RWI, but most often it is the buyer who procures the policy to protect against the risk of the seller's breach of representations and warranties.

  10. Reps & Warranties Insurance (RWI): Changing the (M&A) World?

    Our 2019 Buy-Side Reps and Warranties Insurance (RWI) Deal Terms Study analyzes private-target acquisitions over a three-year period in which we provided professional and financial services to consider how transactions that use Buy-Side RWI compare to those that don't.

  11. PDF Insuring the Deal: Key Considerations when Utilizing Transactional

    RWI provides coverage for financial losses resulting from breaches of representations and warranties made by target companies or sellers contained in purchase agreements. Protects an insured from unanticipated (unknown) losses that may arise subsequent to the closing. Preserves deal value by shifting risk of loss to insurer for fixed cost.

  12. IP Diligence in Transactions: Understanding the Relevance of RWI

    With reports of a continued increase in the volume of mergers and acquisitions—a growth of nearly 160% in just the first half of 2021 alone—and no signs of a slowdown, it remains important for companies and investors to consider the scope of IP diligence appropriate for their targets, and how representation and warranty insurance (RWI) may affec...

  13. Representations and Warranties Insurance

    STEP 1: Submit Underwriting Materials and Solicit Quotes. The proposed insured and its insurance agent discuss the underlying M&A deal and the structure of the desired RWI coverage, and the insurance agent submits preliminary underwriting materials to one or more RWI underwriters. Preliminary submission materials typically include the target ...

  14. RWI Policies: Mind the Coverage Gap

    The use of Representation and Warranty insurance (RWI) policies has jumped from 29% in 2016 to 65% in 2021 [i]. This increase was likely aided by a seller-favorable climate and rising inflationary pressures highlighting the benefit of having all transaction consideration in sellers' hands at closing.

  15. Merger R&W

    R&W Insurance Policy. Parent has conditionally bound a buyer-side representations and warranties insurance policy in connection with this Agreement (the " RWI Policy ") with the RWI Insurer, a true, correct, and complete copy of which has been provided to the Company, including all exhibits and attachments thereto (the " Binder Agreement

  16. Collateral Assignment of R&W Insurance Definition

    Define Collateral Assignment of R&W Insurance. means that Collateral Assignment of Representation and Warranty Insurance Agreement, dated as of the Closing Date, by and among the Borrower, CFC Underwriting Limited, the applicable insurer, and the Administrative Agent.

  17. Collateral Assignment: All You Need to Know

    Excellent Jump to Section A collateral assignment involves granting a security interest in the asset or property to a lender. It is a lawful arrangement where the borrower promises an asset or property to the lender to guarantee the debt repayment or meet a financial obligation.

  18. What Is Collateral Assignment?

    Collateral assignment is the practice of using a life insurance policy as collateral for a loan. Collateral is any asset that your lender can take if you default on the loan. For example, you might apply for a $25,000 loan to start a business. But your lender is unwilling to approve the loan without sufficient collateral.

  19. A Collateral Assignment of Life Insurance

    A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit...

  20. PDF Assignments and Collateral Assignments Of Commercial Leases

    collateral assignment of a lease for security purposes generally will only create a lien not an assign-ment." 2185 White Plains Rd. LLC v. G & G Pelham Food Corp., 58 Misc. 3d 1227(A), 98 N.Y.S.3d 503 (N.Y. Civ. Ct. 2018). In 2185 White Plains Rd., the collateral assignment at issue noted that the lender did not undertake responsibility for ...

  21. What Is Collateral Assignment of Life Insurance?

    Collateral assignment is an additional agreement to your life insurance policy that gives a lender first claim to your life insurance payout, but lets you name beneficiaries who can claim any money left over after the loan is paid.

  22. RWI Assignment Agreement Definition

    Define RWI Assignment Agreement. is defined in Section 2.7(n).

  23. Guidelines for Collateral Assignment of Life Insurance

    A collateral assignment of insurance is a conditional assignment appointing a lender as the primary beneficiary of a benefit to use as collateral for a loan. If the borrower is unable to pay, the lender can cash in the insurance policy and recover what is owed. An Absolute assignment in insurance involves signing over your entire policy to ...

  24. MLB injury report: 7 of the most impactful ailments for Opening Day

    The club officially handed that assignment to veteran Miles Mikolas on Monday, one day after Gray threw a third bullpen session since suffering a hamstring strain on March 4. Gray threw 15 pitches ...