Opinions of Counsel in Lending Transactions: Scope and Assumptions, Substantive Opinions, Qualifications

In a typical commercial finance transaction, the lender requires a legal opinion of the borrower's counsel. The lender requires this opinion letter as part of its underwriting to support the legal premises underlying the transaction and related documents.

Although particular transactions sometimes require specialized opinions, all opinion letters in loan transactions include opinions that the borrower and other loan parties are entities that are validly existing and in good standing in their jurisdiction of organization and any other jurisdiction relevant to the loan and they have the requisite power and authority to perform their obligations under the transaction documents. These legal opinions also typically include opinions about the enforceability of the loan documents.

To serve the needs of the borrower and lender while protecting the attorney against potential liability, a well-written opinion letter describes the scope of, and limitations on and qualifications to, the opinions rendered, and the factual (and sometimes legal) assumptions underlying those opinions. The content of an opinion letter depends largely on the legal and factual investigations performed by the opinion giver, guided by the requirements of the parties and customary practice of attorneys in the practice area.

Listen as our authoritative panel of finance attorneys discusses how to prepare and provide opinion letters in commercial finance transactions. The panel will review the risks and potential liabilities for the opinion giver, frequent points of negotiation, and best practices to reduce risk.

1. Scope of the opinion: addressees and reliance
2. Assumptions
3. Substantive opinions
   1. Formation and valid existence
   2. Entity power
   3. Authorization, execution, and delivery
   4. No required consents, authorizations, or approvals
   5. Enforceability
   6. No conflict
   7. No litigation
4. Qualifications
   1. State practice
   2. Enforceability exceptions
   3. Legal and factual assumptions
   4. General exceptions, including bankruptcy and equitable principals
5. Sources for opinion practice and customary practice
6. Special issues and opinion topics
7. Bringdown and supplemental opinion requests

The panel will review these and other vital issues:

• The basic opinions typically required in commercial finance transactions
• The due diligence necessary to give certain opinions
• The importance of customary practice, assumptions, and qualifications in opinion letters
• Opinions that are inappropriate subjects to be covered by opining counsel or which may be rendered subject to appropriate legal and factual diligence, and scope limitations and qualifications
• An overview of opinions sometimes requested, tailored to specific types of borrowers, transaction terms, or industries, including a sampling of opinion requests and responses tailored to specific state or federal law issues
• Opinions on commercial transactions involving the treatment of digital assets, electronic notices and signatures, and security interests in intellectual property