Common Qualifications to a Remedies Opinion in U.S. Commercial Loan Transactions

As a condition to the closing of many types of business transactions, one or more of the parties may be required to provide written opinion letters of counsel for the benefit of other parties to the transaction. These opinions are often referred to as “third-party” opinions because the opinion giver renders them to a party or parties other than the opinion giver’s own client. These opinions may cover a range of issues, including, among others, the entity status and power of, the due authorization, execution and delivery of the transaction documents by, and the enforceability of those documents against, the opinion giver’s own client in the transaction. Oftentimes the discussions regarding the scope of these opinions and the extent to which they will be qualified are time-consuming, and the resulting costs, borne by the client whose counsel is asked to render the opinions, increase substantially as negotiations proceed. This article, focusing on third-party opinions rendered in the context of U.S. commercial loan transactions, considers a number of qualifications that for various reasons, in the experience of the authors, opinion givers commonly include and opinion recipients and their counsel commonly accept. The authors believe that the identification of commonly used and accepted qualifications in the U.S. commercial loan market can help to streamline the opinion process in many transactions.

INTRODUCTION

Set forth below are qualifications that, in the authors’ experience, are commonly taken by opinion givers, and also commonly accepted by banks and other institutional lenders, in third-party legal opinion letters addressing the enforceability of financing agreements in the U.S. domestic loan context.2 In describing these qualifications, this article does not purport to reflect a statistical analysis of opinion practice or to analyze the need for or desirability of these qualifications under specific circumstances. Rather, it attempts to identify selected common qualifications, offer reasons for their being taken, and set forth common formulations for expressing them. The list of qualifications is neither exclusive nor suggestive of those that should be taken or accepted.3

Sometimes a qualification is included in a legal opinion to highlight a legal issue that could affect the enforceability of provisions of the covered agreement. Sometimes a qualification is necessary for an opinion to be correct; at other times, it clarifies how the opinion should be interpreted.4

In many cases, however, factors other than a perceived necessity for the qualification may account for the opinion giver’s taking the qualification, such as: a decision that engaging in the requisite research to resolve a legal issue is not justified on a cost-benefit or other basis; the unwillingness of the lawyer to make a determination that he or she views as factual (for example, whether a waiver is conspicuous or knowing, or whether liquidated damages are reasonable); the fact that the qualification is among those listed in one or more bar or other association reports; personal preference of the opining lawyer or law firm opinion committee policy; or an unwillingness on the part of one or more parties to modify the transaction structure or documentation to eliminate the need for the qualification.

Furthermore, as transactions become more complex and close more quickly, time constraints often make it difficult for an opinion giver to complete the legal research—or even to undertake the legal analysis—needed to narrow or eliminate qualifications upon which the opinion giver commonly relies. Cost-benefit considerations are another important reason that many of these qualifications have become common in the U.S. commercial loan context. In the process of preparing and negotiating legal opinions, opinion givers and recipients, to some extent, undertake a cost-benefit analysis to determine whether the cost of doing research, or undertaking careful legal analysis regarding a given set of legal issues, is justified by the benefit of receiving an opinion covering those issues.

Part of the explanation for the willingness on the part of recipients ...

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ABOUT THE AUTHORS

Houston, TX

Gail Merel

Gail practices in the corporate and securities and business transactions areas of the firm, with extensive experience in a variety of corporate transactions and a particular emphasis in corporate finance…

Charlotte, NC

A. Mark Adcock

Mark Adcock represents a number of manufacturing companies and financial institutions. He has a great deal of experience in transactions involving the sale of goods, distribution and sales representation…

Fort Lauderdale, FL

Robert W. Barron

Robert W. Barron is a Florida-based business attorney with significant experience with real estate asset and financing transactions, corporate acquisition and disposition transactions, and business…

Chicago, IL

Willis R. Buck, Jr.

Willis R. Buck, JR. is a partner in Sidley’s Chicago office, where he has focused his practice in securitization and structured finance since 1985. Mr. Buck’s practice…

San Diego, CA

Jerome A. Grossman

In the dynamic world of real estate finance law, having a wealth of experience counts. Jerome Grossman has represented clients in a broad range of general commercial and real estate finance matters…

Wilmington, DE

Louis G. Hering

Lou is a partner in the Firm’s Commercial Law Counseling Group. He is actively involved in the organization and structuring of all forms of Delaware alternative entities. His practice includes…

San Francisco, CA

Timothy G. Hoxie

Tim Hoxie has more than 30 years of experience counseling public and private clients on matters of corporate governance, securities law compliance, mergers and acquisitions, joint ventures, and public…

Chicago, IL

Andrew M. Kaufman

Andrew Kaufman is Of Counsel to the Firm’s Corporate Group, focusing his practice principally in the areas of debt financing and secured transactions, leasing, structured financings, workouts…

New York City, NY

Reade H. Ryan, Jr.

Reade H. Ryan, a member of the Finance Group, represents clients in a wide range of securitization and commercial lending matters and transactions. He represents financial institutions in various types…

Fort Lauderdale, FL

Philip B. Schwartz

Phil Schwartz’s areas of practice include securities disclosure, private and public debt and equity financings, mergers and acquisitions and general corporate matters. He also represents clients in…

Houston, TX

Stephen C. Tarry

Steve’s principal area of practice is domestic and international financing transactions, including project finance and secured lending transactions. Over his 36-year career with the firm, Steve has…

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