Warehouseman's Letter

Summary

This template is a warehouseman's letter. It is a letter agreement written by a lender for a warehouse operator that is the bailee of goods subject to a security interest of the lender providing financing to the bailor, which is the borrower. This template includes practical guidance and drafting notes. Some asset-based borrowers use a professional storage operator or warehouseman to store or process goods, which are part of the inventory or equipment collateral making up the borrowing base. A warehouseman, also considered a "bailee," which is holding such goods of the borrower may have a lien against the goods to secure payment of the warehouseman's storage fees or other charges. The warehouseman's lien may arise under the Uniform Commercial Code (U.C.C. § 7-209), pursuant to another specific state statute, or under common law. The warehouseman's lien may have priority over a prior perfected security interest of a lender. Therefore, a prudent lender will obtain a waiver or subordination letter signed by the warehouseman in order to ensure the lender's prior perfected security interest in the warehoused goods. The warehouseman's letter agreement would be among the agreements within the definition of "Collateral Access Agreements" typically included in the credit agreement. In addition to obtaining the warehouseman letter agreement, the lender commonly will require the borrower to establish a reserve to pay any warehouseman's charges assumed by the lender. A failure or delay in obtaining this letter agreement by the borrower may likewise result in the lender's establishment of an additional reserve against the borrowing base. Conform the capitalized terms to defined terms in the relevant credit agreement. Read in conjunction with the practice note Inventory and Equipment Borrowing Eligibility Criteria — Inventory. See also Eligible Inventory Definition (Asset-Based Loan Agreement), Subsection (l). For a full listing of key content that provides an overview of the creation, perfection, and priority of security interests under the Uniform Commercial Code (UCC), see Security Interests Resource Kit. For a full listing of key content covering asset-based lending, including agreements, security, guaranties, perfection, and priorities, see Asset-Based Lending Resource Kit. For a full listing of key content covering due diligence for financing, see Due Diligence for Financing Resource Kit.