Kathryn Borgeson, Christopher Dickson, Stuart Goldstein, Christopher McDermott, Lisa Pauquette, Thomas Curtin, Hunter White, James McDonnell and Alexander Strom also contributed to this article. 

The authors examine how Tricolor's collapse has intensified scrutiny of collateral management practices for banks and loan purchasers, including due diligence, credit agreement terms, custody of assets and cash flow controls. They detail risk mitigation strategies such as tailoring diligence to business models, strengthening contract representations and covenants and employing robust audit and asset verification tools. The article also addresses the heightened bankruptcy risk for lenders and outlines protections against fraudulent transfers and unperfected liens. The article emphasizes that while no system is foolproof against loss or fraud, enhanced controls and careful structuring can significantly reduce exposure in asset-backed transactions.

Read the full story here.