Accounts Receivable Financing DACAs DAISAs Chapter 15 AR

Accounts Receivable Financing, DACAs & DAISAs Chapter 15 AR Financing Chapter 16 DACA/DAISA

AR Financing – New Intercreditor Agreement • March 2013 new documents published including the Intercreditor Agreement (ICA) • AR industry strongly opposed the published ICA • Formed a Task Force to revise document • Revision became available for use on February 27, 2014 • Final OMB-numbered form HUD-92322 -ORCF now available on HUDClips

AR Financing – New Intercreditor Agreement § February 2014 changes include: ØDefinition of AR Loan Obligations ØCut-Off Time & Ceased Funding ØNotices and Consent Rights

AR Financing – New Intercreditor Agreement § June 2014 changes includes: ØStandstill provision • Clarifies that no changes are permitted to the remittance instructions until AR lender is paid in full.

AR Financing – New Intercreditor Agreement Ø Cross-default is not permitted between HUD AR line and non-HUD AR lines Ø Policy since the document was implemented on July 12, 2013, and all subsequent revisions

AR Financing – Transitioning to New Documents • New Document Implementation matrix on www. hud. gov • Adding project(s) to existing line – no major changes to the existing line – may use OLD documents

AR Financing – Transitioning to New Documents Ø Substantial change to the AR line requires use of NEW documents: § adds an interest reserve to the AR loan § increases the interest rate (other than variable interest rate provisions) § increases the Maximum Commitment Amount of the AR loan by 15% or more § amends or expands the type of obligations secured by the AR loan § changes any term or condition that might be deemed substantial at the sole discretion of HUD

Cash Flow Charts • Lender must submit a cash flow chart – § 16. 3 describes Cash Flow Charts – § 16. 4 describes Cash Flow Structures – See also the Legal Punchlist for required elements • Appendix 16—sample Cash Flow Charts.

DACAs and DAISAs • Deposit Account Control Agreements (DACA) – Non-government receivables – Control agreement • Deposit Account Instruction Service Agreements (DAISA) – Government receivables – Sweep instructions • See § 16. 1

DACAs and DAISAs • There is no standard HUD form DACA or DAISA, but certain key terms must be included in both documents: ü§ 16. 6(C)—DACA’s; ü§ 16. 7(A)—DAISA’s; üLegal Punchlists

Commingled Accounts Ø If a commingled account is proposed, the parties must demonstrate the following: q. Systems in place that identify all funds; q. Operator financial reporting as required by 24 CFR 5. 801; q. Not permitted to commingle FHA-insured with non-FHA-insured projects q. Subject to HUD’s written approval • See § 16. 4(G) and Appendix 16. 4.

DACA Detail • General parameters – § 16. 6(A) • Types of DACAs – § 16. 6(B): 1. Future notification 2. Immediate control • Key elements – § 16. 6(C) q Parties q Notification of security interest q No other DACAs q Accounts covered q UCC language q Giving notice of control q Implementing control notice q Set-off, recoupment q Terminating a DACA

DAISA Detail • Key elements – § 16. 7(A) q. Parties to a DAISA q. Notification of security interest q. No DACAs q. Accounts covered q. Sweep instructions q. Set-off, recoupment q. Termination of a DAISA

Key Elements for Both DACA and DAISA q. Access to account q. Account maintenance requirements q. Minimum balance requirements q. Conflicts q. Bank fees q. Indemnification q. Boilerplate q. Assignment (See § 16. 8)