bicollateral

Bicollateral refers to a collateral arrangement in which a borrower pledges two distinct assets to secure a single loan or obligation. The two assets may be of different types and may be covered by separate security interests or by a joint lien, as defined in the credit agreement and any intercreditor agreements.

In a bicollateral structure, the value and liquidity of each asset are assessed, and the contract specifies how collateral is valued, monitored, and liquidated on default. If the borrower defaults, the lender may realize value from either asset, with the order of priority and procedures set out in the security documents.

Benefits include diversification of collateral value, potential increases in borrowing capacity, and heightened lender comfort. Risks include added legal and administrative complexity, valuation gaps, intercreditor disputes, and potential adverse effects if one asset becomes illiquid or devalues.

Common contexts include corporate lending secured by both real estate and equipment, or loans secured by receivables and inventory; structured finance arrangements and certain securitizations may employ bicollateral structures to broaden collateral pools.

Legal considerations cover perfection of liens, filing with appropriate authorities, priority among liens, and any cross-default or cross-collateral clauses that govern remedies across assets.