Important June 30, 2006 Deadline Approaching

This Alert is intended to remind our bondholder, bond trustee and bond insurer clients and friends about an approaching deadline to perfect security interests in collateral. Though the filing requirements are highly technical, failure to comply could have a dramatic dollar impact on the recovery value of certain outstanding bonds.

As you may recall, in 2001, Article 9 of the Uniform Commercial Code (UCC) was substantially revised. All 50 states have adopted the revisions, most with a July 1, 2001 effective date. These revisions were outlined in the Client Advisory (Impact of Revised Article 9 on Municipal Bonds) that we distributed at the time and very significantly affect how, when and where UCC financing statements need to be filed in order to perfect liens on certain collateral such as gross revenues, accounts receivable, equipment and other personal property. Among the most significant changes was that financing statements now need to be filed centrally in the state where the issuer/borrower is “located,” rather than where the collateral is sited. Failure to comply with these rules may mean that bondholders, bond trustees and bond insurers can find that their liens are unperfected. Whether or not a lien is perfected can be a major factor in determining what a creditor will eventually recover in a liquidation, foreclosure or bankruptcy.

Revised Article 9 applies retroactively to liens securing bonds that were issued before the effective date. However, Revised Article 9 established a transition period for compliance. In most states, financing statements filed under the old rules remain effective until the earlier of: (1) their expiration date under the old rules or (2) June 30, 2006. In the majority of cases, the June 30, 2006 date poses no problem because under the old rules, most financing statements would have expired and needed to be continued during the last five years, i.e., since the effective date of Revised Article 9.

However, several scenarios remain where a financing statement might still be effective under the old rules but could lapse under Revised Article 9 if no action is taken before June 30, 2006. First, for example, under the old rules, a continuation of a financing statement was due six months before the statement’s expiration date. Thus, where a financing statement was renewed six months before it expired, the renewed statement might not expire under the old rules until after June 30, 2006. Second, in states where financing statements were, or could be, effective for longer than five years under the old rules (e.g., Maryland, Arizona, and for certain interests, Idaho, New York, Ohio, and Tennessee), a financing statement may not expire under the old rules until after June 30, 2006. Third, where the state set the effective date of the revised rule later than July 1, 2001, but the transition period still ends on June 30, 2006 (e.g., Connecticut and Florida), certain statements would not lapse under the old rules until after June 30, 2006. Fourth, where the transition period is beyond June 30, 2006 (e.g., Alabama, Arizona, and Mississippi), and the new rules require filing in another state, the filing may lapse on June 30, 2006, in the other states. Other unusual intersections between the old and new rules at the state level could result in June 30^th being a very important deadline.

Bondholders, bond trustees and bond insurers would be well-advised to undertake steps to ensure that all financing statements will have been correctly filed under Revised Article 9 by the final June 30, 2006 deadline to ensure that your security interests are not cut off. Please contact us if you have any questions or require assistance in assessing the application of Revised Article 9 to a particular filing.

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Daniel Bleck
(617) 348-4498 DSBleck@mintz.com
Meryl Epstein
(617) 348-1635 MJEpstein@mintz.com
Ian Hammel
(617) 348-1724 IAHammel@mintz.com
Ann-Ellen Hornidge
(617) 348-1657 AHornidge@mintz.com
Bill Kannel
(617) 348-1665 BKannel@mintz.com
Rich Moche
(617) 348-1696 RMoche@mintz.com
Scott Moskol
(617) 348-1818 SHMoskol@mintz.com
Colleen Murphy
(617) 348-1836 CAMurphy@mintz.com
Paul Ricotta
(617) 348-1752 PRicotta@mintz.com
Miyoko Sato
(617) 348-1896 PMSato@mintz.com
Kevin Walsh
(617) 348-1622 KWalsh@mintz.com
Len Weiser-Varon
(617) 348-1758 LWeiser-Varon@mintz.com

Copyright © 2006 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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