Cash Collateral Agreement Template for the United States

A Cash Collateral Agreement is a legal document that creates a security interest in cash assets held by a borrower or pledgor to secure financial obligations under United States law. This agreement is governed primarily by UCC Article 9, which establishes the framework for secured transactions involving personal property, including cash deposits and accounts.

When do you need this document?

You need a Cash Collateral Agreement when entering into secured lending arrangements where cash serves as collateral. Commercial lenders require these agreements to secure business loans, credit facilities, or revolving credit lines. Investment banks and broker-dealers use them for margin lending and securities trading arrangements. Companies engaged in derivatives trading rely on these agreements to meet margin requirements and secure counterparty exposure. Additionally, you'll need this document when restructuring debt arrangements or during bankruptcy proceedings where cash assets must be pledged to continue operations.

Key legal considerations

The agreement must clearly grant a security interest in identifiable cash collateral and specify the secured obligations. Control provisions are critical - the secured party must establish control over deposit accounts through control agreements with depository banks to perfect the security interest under UCC Section 9-314. The document should address setoff rights, withdrawal restrictions, and the pledgor's limited use of collateral funds. Default provisions must specify when the secured party can access collateral and outline enforcement procedures. Consider including representations and warranties about the pledgor's authority to grant security interests and the absence of conflicting liens. Integration with existing loan documentation is essential to avoid conflicts between overlapping security interests.

Legal requirements in United States

Under UCC Article 9, perfection of security interests in cash collateral requires the secured party to obtain control over deposit accounts, typically through three-party control agreements between the secured party, pledgor, and depository bank. Federal banking regulations under the Securities Exchange Act of 1934 may apply when securities are involved as additional collateral. Margin stock used as collateral must comply with Federal Reserve Regulation U requirements. Financial institutions must ensure compliance with Bank Secrecy Act and USA PATRIOT Act requirements for account monitoring and reporting. In bankruptcy contexts, Section 363 of the Bankruptcy Code governs the use of cash collateral, requiring court approval for its use by debtors in possession. The agreement must include proper legal descriptions of collateral, specify governing law clauses, and ensure all parties have authority to enter into the arrangement.