The Collateral Substitution Agreement is essential in situations where parties wish to maintain a security arrangement while changing the underlying collateral. This document becomes necessary when the original collateral needs to be replaced, whether due to business requirements, market conditions, or optimization of asset utilization. The agreement, governed by Canadian law, ensures that the security interest remains continuously perfected throughout the substitution process, maintaining compliance with federal legislation and provincial security laws, including the PPSA. It typically follows or supplements an existing security agreement and includes detailed provisions for valuation, eligibility criteria, and procedural requirements. The document is particularly relevant in financial transactions, secured lending arrangements, and complex commercial dealings where flexibility in collateral management is required while maintaining robust security interests.
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1. Parties: Identification of the parties to the agreement, including the collateral provider and collateral receiver
2. Background: Context of the agreement, reference to original security agreement, and purpose of the collateral substitution arrangement
3. Definitions: Definitions of key terms including Original Collateral, Substitute Collateral, Valuation Date, etc.
4. Right of Substitution: Core provision establishing the right to substitute collateral and general parameters
5. Substitution Process: Detailed process for requesting and executing collateral substitution
6. Eligibility Criteria: Requirements and characteristics of eligible substitute collateral
7. Valuation Methodology: Methods for valuing both original and substitute collateral
8. Representations and Warranties: Standard representations regarding ownership, authority, and quality of substitute collateral
9. Covenants: Ongoing obligations of the parties regarding the collateral
10. Security Interest: Provisions ensuring continuation of security interest in substitute collateral
11. Events of Default: Circumstances constituting default and consequences
12. Governing Law and Jurisdiction: Specification of applicable law and courts
13. Notices: Process for formal communications between parties
14. Execution: Signature blocks and execution requirements
1. Custodian Provisions: Required when a third-party custodian holds the collateral
2. Multiple Currency Provisions: Needed when substitution involves different currencies
3. Tax Provisions: Detailed tax handling when substitution may have tax implications
4. Credit Support Provisions: Additional support requirements for certain types of substitute collateral
5. Regulatory Compliance: Specific provisions when parties are regulated entities
6. Cross-Border Provisions: Required for international collateral substitution arrangements
7. Intermediary Provisions: When financial intermediaries are involved in the substitution process
8. Insurance Requirements: Specific insurance provisions for certain types of collateral
1. Schedule A - Eligible Collateral Criteria: Detailed specifications of acceptable substitute collateral types and characteristics
2. Schedule B - Valuation Procedures: Detailed procedures for valuing different types of collateral
3. Schedule C - Substitution Request Form: Standard form for requesting collateral substitution
4. Schedule D - Original Collateral Description: Detailed description of the original collateral being substituted
5. Schedule E - Notice Requirements: Forms and procedures for various notices under the agreement
6. Appendix 1 - Authorized Personnel: List of authorized persons who can request/approve substitutions
7. Appendix 2 - Valuation Sources: Approved sources for collateral valuation
8. Appendix 3 - Operating Procedures: Detailed operational procedures for executing substitutions
Authors
Relevant legal definitions
Clauses
Relevant Industries
Banking
Financial Services
Investment Management
Real Estate
Insurance
Asset Management
Private Equity
Commercial Lending
Securities Trading
Commodities Trading
Corporate Finance
Investment Banking
Relevant Teams
Legal
Compliance
Risk Management
Treasury
Finance
Credit Administration
Collateral Management
Securities Operations
Transaction Management
Portfolio Management
Corporate Finance
Asset Management
Relevant Roles
Legal Counsel
Compliance Officer
Risk Manager
Credit Manager
Collateral Manager
Treasury Manager
Security Operations Manager
Finance Director
Portfolio Manager
Asset Manager
Chief Financial Officer
Chief Risk Officer
Corporate Counsel
Transaction Manager
Securities Operations Officer
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