hedge LAW REPORT fund law and regulation Pledges How Can a Investor Pledge Its Interest as Collateral for a Loan Without Obtaining the Consent of the s Manager or General Partner? By Sabrena Silver and Scott E. Waxman Loans secured by limited partnership and limited liability company interests ( Fund Interests ) are an important source of liquidity for investors and of revenue for lenders. However, the constitutional documents (the Fund Documents ) of the issuer of a Fund Interest (each, an Issuer ) often provide that a holder of the Fund Interest (an Investor ) may not pledge its Fund Interest without the prior consent of the Issuer, its general partner, manager or another party (a Required Assenter ), which is an obstacle to the lender (the Secured Party ) taking security over the Fund Interest. Consequently, where an Investor as pledgor pledges its Fund Interest to a Secured Party as security for a loan, the transaction parties need to obtain the consent of the Required Assenter to the Investor s pledge of the Fund Interest, although under some circumstances provisions of the Uniform Commercial Code (the UCC ) as in effect in certain jurisdictions may allow the Investor to create a security interest despite the failure to obtain the Required Assenter s consent. [1] Many Required Assenters refuse to consent or agree to provide only a limited consent that does not fully protect the Secured Party s interests. Fortunately, where the Fund Interest is transferred in compliance with the Fund Documents by the Investor to a securities intermediary (the Securities Intermediary ), which becomes the legal owner of the Fund Interest, the Secured Party may take a security interest in the securities account, the security entitlements relating to the financial assets credited to such securities account and the Investor s indirect pro rata property interest in the financial assets credited to such securities account, in each case, without obtaining the Required Assenter s consent, even when consent to a pledge of the Fund Interest is required by the applicable Fund Documents. A Fund Interest, Depending on the Fund Documents and the Way the Fund Interest is Held by the Investor, May be Treated as Any One of Several UCC Personal Property Categories Fund Interests usually take the form of interests in limited partnerships or limited liability companies. They can be treated in several different ways for purposes of the UCC. A Fund Interest is generally treated as a general intangible, although it may be treated as a security in the circumstances described below. A Fund Interest, whether it is a general intangible or a security, may also, however, be transferred by the Investor to a securities account maintained by a Securities Intermediary. In that case, assuming compliance with any transfer provisions of the Fund Documents, the Securities Intermediary becomes the legal owner of the Fund Interest and the Investor will have an interest in the securities account, the security entitlements with respect to the financial assets credited to the securities account and an indirect property interest in the financial assets, including the Fund Interest, credited to the securities account (such assets, collectively, hereinafter referred to as the Fund Interest Account Assets ). [2]
If the Fund Documents of an Issuer do not contain an election to have Fund Interests treated as securities for purposes of Article 8 of the UCC (an Article 8 Election ), such Fund Interests will constitute general intangibles within the meaning of the UCC and they will not be considered to be securities and, therefore, will not be investment property. [3] If an Issuer has made an Article 8 Election, the Fund Document and any physical certificate representing the Fund Interests should include language indicating that the applicable Fund Interests are securities within the meaning of UCC Article 8. Where an Article 8 Election has been validly made, the Fund Interest will be treated as a security and, therefore, as investment property within the meaning of the UCC. the securities account under UCC Article 8. The Investor, by virtue of these security entitlements and the general indirect holding system design of Article 8, no longer has a direct property interest in the Fund Interest; rather it has an indirect pro rata property interest in all such interests in that Fund Interest held by the Securities Intermediary. [4] In other words, if the Securities Intermediary holds the same class of Fund Interest of the same Issuer on behalf of other customers, each customer is an entitlement holder that has an indirect pro rata property interest in all such Fund Interests held by the Securities Intermediary. To raise capital, an Investor seeks financing from a lender and grants to such lender, as Secured Party, a security interest in the Fund Interest Account Assets, rather than the Fund Interest itself. As an alternative, however, a Fund Interest, whether it is a general intangible or a security as described above, may be credited to a securities account, which, again, would allow a different treatment under the UCC. Under these circumstances, the Investor, as the original legal owner of the Fund Interest, transfers its legal ownership interest in the Fund Interest to the Securities Intermediary in full compliance with the Fund Documents and thereafter enters into an agreement with the Securities Intermediary. This may take the form of a custody agreement or a securities account control agreement, under which, among other covenants, the Securities Intermediary agrees (i) to establish a securities account for the Investor, (ii) to become the legal and registered owner of the Fund Interest, (iii) to credit the Fund Interest to the securities account and (iv) to follow the instructions of the Investor with respect to the Fund Interest. Under these circumstances, the Investor acquires security entitlements with respect to the financial assets credited to Outside of the context of the Securities Intermediary structure discussed in this article, it would be very important to know whether the Issuer of a Fund Interest had in effect a valid Article 8 Election or not to determine if the Fund Interest is a general intangible or a security and, accordingly, the means to perfect a security interest in the Fund Interest under the UCC. However, if the Investor in the Fund Interest has agreed for a Securities Intermediary to become the legal owner of the Fund Interest, whether the Fund Interest itself is a general intangible or a security is no longer particularly relevant. [5] Rather, the Investor s assets that may be pledged are the Fund Interest Account Assets, including the securities account, the security entitlements relating to the financial assets credited to the securities account, and the Investor s indirect pro rata property interest in the financial assets, including the Fund Interest, credited to the securities account. From the Secured Party s perspective, it may perfect its security interest in these assets either by filing a financing statement or by obtaining control. Because perfection by
control takes priority over perfection by filing, presumably, the Secured Party would want to perfect by control. As a precautionary matter and to capture any other applicable assets of the Investor that are not credited to the securities account, such as the securities account control agreement between the Investor and the Securities Intermediary which is a general intangible and not credited to the securities account, the Secured Party would presumably also want to perfect by filing. To perfect a security interest in a security entitlement by control, the Secured Party must perfect its security interest pursuant to UCC Section 8-106(d). The secured party has control if (1) the Securities Intermediary agrees that it will comply with the entitlement orders originated by the Secured Party without further consent by the Investor or (2) the Secured Party becomes the entitlement holder. Ordinarily, the Secured Party, the Securities Intermediary and the Investor enter into a tripartite agreement (a Securities Account Control Agreement ) under which they agree to the provisions set forth in (1) above to provide the Secured Party control over the applicable securities entitlements. The Securities Account Control Agreement can take the form of a new securities account control agreement or an amended and restated custody agreement (with the inclusion of securities account control language), depending on whether the existing agreement between the Investor and the Secured Party is a custody agreement or a securities account control agreement. Whether the UCC will Invalidate the Effectiveness of Fund Document Provisions Requiring the Consent of a Required Assenter to an Investor s Pledge of a Fund Interest Will Depend on Whether the Fund Interest is a General Intangible or a Security and the Jurisdiction of Organization of the Applicable Issuer, But the Rights Afforded to the Secured Party by Such Invalidation, In Any Event, Will be Limited Usually the Fund Documents of the Issuer will prohibit any registered holder of a Fund Interest from transferring or pledging the Fund Interest without the prior consent of a Required Assenter. Such provisions will also often provide that any transfer or pledge of a Fund Interest without such consent is invalid or unenforceable. Any pledge of a Fund Interest by the Investor as legal owner of the Fund Interest without obtaining the consent of the Required Assenter will likely violate the prohibitions on transfers and pledges in the Fund Documents, whether the Issuer of the Fund Interest has made an Article 8 Election such that the Fund Interest is a security or whether the Fund Interest is a general intangible. Setting aside the UCC, a provision purporting to invalidate any purported transfer or pledge of a Fund Interest in violation of the Fund Documents would be generally enforceable under contract law and of serious concern to a Secured Party, which would want to ensure that any pledge by the Investor of the Fund Interest to the Secured Party complies with the Fund Documents and that the parties have obtained Required Assenter consent to the extent necessary to comply with the Fund Documents. In particular, a problem arises when the Required Assenter refuses to consent to the pledge or when the collateral includes many Fund Interests such that obtaining the consent of multiple Required Assenters is logistically not feasible. However, factoring the UCC back into the equation can dramatically change the outcome depending on where the Issuer is organized. If the Issuer of the Fund Interest has not made an Article 8 Election, meaning that the Fund Interest
is a general intangible, the UCC as in effect in most states negates the effectiveness of prohibitions on pledge to allow a secured party to take a valid and perfected security interest in a Fund Interests even where there is a prohibition on transfer or pledge without consent of a Required Assenter and such consent has not been obtained. [6] Section 9-408(a) of the UCC provides, in relevant part, that a term in an agreement between an account debtor and a debtor which relates to a general intangible, [7] including a contract, and which term prohibits, restricts, or requires the consent of the account debtor to the assignment or transfer, or creation, attachment or perfection of a security interest in the general intangible is ineffective to the extent that the term would impair the creation, attachment or perfection of a security interest or provides that the creation, attachment or perfection of the security interest may give rise to a default under the general intangible (an Applicable Assignment Restriction ). Secured parties often rely on Section 9-408(a) to gain comfort that they have a validly created and perfected security interest in a Fund Interest that is a general intangible. Some commentators have observed that the language in Section 9-408(a) referring to an agreement between an account debtor and a debtor would not typically apply to invalidate a pledge restriction applicable to an Investor s pledge of its Fund Interest, because such an agreement is not between the account debtor (in this case, the Issuer) and the debtor (in this case, the Investor). [8] In general, the Issuer, itself, is not a party to its own limited liability company agreement or partnership agreement. Some state law limited liability company and partnership statutes, including Delaware s, provide that the limited liability company or partnership is bound by its limited liability company agreement or partnership agreement, as applicable, even if the entity is not a party to the agreement, which may provide support for an argument that Section 9-408(a) should apply to invalidate restrictions in limited liability company and partnership agreements. [9] The lending community continues to rely on Section 9-408(a) to invalidate restrictions on transfer or pledge contained in limited liability company agreements and partnership agreements. We know of no cases addressing this issue. Importantly, some jurisdictions, including Colorado, Delaware, Kentucky, Texas and Virginia (collectively, Non- Uniform Jurisdictions ), have adopted statutes, including non-uniform UCC provisions and business entity laws, making clear that Applicable Assignment Restrictions contained in limited liability company agreements and partnership agreements are preserved and not rendered ineffective by UCC Sections 9-406 and 9-408. If the applicable Issuer is organized in a Non-Uniform Jurisdiction, the UCC in such jurisdiction will not invalidate a prohibition on transfer or pledge contained in the applicable Fund Document. [10] Notably, there is no provision in the UCC to render ineffective transfer restrictions contained in securities, as opposed to general intangibles. Consequently, to the extent that the Issuer has made an Article 8 Election such that the Fund Interest is a security, UCC Section 9-408 would not be effective to render ineffective any Applicable Assignment Restriction. Additionally, even where the UCC operates to make ineffective a provision in an agreement that would purport to prevent the creation, attachment or perfection of a
security interest, or to cause a default, the UCC limits the secured party s rights in that (a) the secured party may not be entitled to enforce the security interest against the account debtor, (b) the security interest does not impose a duty on the account debtor, (c) the security interest does not require the account debtor to recognize the security interest, pay or render performance to the secured party or accept payment or performance from the secured party, (d) the secured party cannot use or assign the debtor s rights under the general intangible, (e) the security interest does not entitle the secured party to use or have access to confidential information, and (f) the security interest does not entitle the secured party to enforce the security interest in the general intangible. [11] Consequently, where the Fund Interest is not credited to a securities account, it is prudent and advisable for the Secured Party to obtain Required Assenter consent where the Fund Interest is subject to an Applicable Assignment Restriction. First, the UCC provisions that make Applicable Assignment Restrictions ineffective only apply where the Fund Interest is a general intangible, and not where it is a security. Second, although a technical problem which may not arise, it appears that a court could find that an Applicable Assignment Restriction is not invalidated in any applicable Issuer jurisdiction in circumstances where the Issuer is not a party to (or bound by) the applicable Fund Document. Third, some states, including Delaware, have enacted nonuniform provisions to the UCC to preserve the effectiveness of Applicable Assignment Restrictions with respect to partnerships and limited liability companies, as noted above. Fourth, the benefits to the Secured Party are incomplete even where the Fund Interest is a general intangible and the UCC renders ineffective provisions in Fund Documents that require consent to a legal owner s pledge of a Fund Interest. Where the Fund Interest is in the Form of a Financial Asset Credited to a Securities Account, Even Where the Fund Document Contains an Applicable Assignment Restriction, the Secured Party Can Properly Create and Perfect a Security Interest in the Fund Interest Account Assets, Without Obtaining Required Assenter Consent. Where (a) the Fund Interest is registered in the name of a Securities Intermediary in a transfer that complies with the Fund Documents, (b) the Investor grants a security interest to the Secured Party in the Fund Interest Account Assets, including the securities account, the security entitlements relating to the financial assets credited to such account and the financial assets, including those relating to the Fund Interest, credited to such securities account, and (c) the Securities Intermediary does not grant a security interest in its legal ownership interest in the Fund Interest, no consent by a Required Assenter to a pledge is required for the Investor to create or perfect a security interest in the Fund Interest Account Assets, even if the Fund Documents purport to require such consent because (i) the prohibition likely by its terms applies only to the legal owner of the Fund Interest, which would not be breached by a pledge by the Investor (because it is no longer the owner) and (ii) even if by its terms the prohibition applies to prohibit a pledge by a beneficial owner, as opposed to the legal owner, of its rights to the Fund Interests, or to prohibit a direct or indirect pledge of the Fund Interests, the prohibition should not be breached by the grant by the Investor of a security interest in the Fund Interest Account Assets, as opposed to the Fund Interest itself. [12] Where the Fund Documents purport to prohibit a pledge of the applicable Fund Interest without the prior consent of a Required Assenter, the prohibition is generally drafted to prohibit a pledge of a Fund Interest by the registered
holder of such Fund Interest. Consequently, where the Fund Interest is properly registered in the name of the Securities Intermediary, who is the registered and legal owner of the Fund Interest, the prohibition would only restrict the ability of the Securities Intermediary to pledge the Fund Interest. The prohibition would not ordinarily restrict the ability of the Investor to pledge its rights to the Fund Interest Account Assets, which includes assets created by the relationship between the Investor and the Securities Intermediary rather than rights of the Investor to the Fund Interest itself or against the Issuer. Here, the Investor is granting a security interest in its securities account, security entitlements and other rights against the Securities Intermediary, which would not ordinarily be captured by any prohibition on pledge contained in applicable Fund Documents. Even if a Fund Document were to prohibit a pledge by a beneficial owner, as opposed to the legal owner, of its rights to the Fund Interests, or to prohibit a direct or indirect pledge of the Fund Interests, such a prohibition should not be violated by the pledge by the Investor of its security entitlements with respect to the financial assets credited to the securities account and its other rights against the Securities Intermediary. [13] Technically, under the UCC, the Investor has no ownership interest in the Fund Interest but has only an indirect pro rata interest in all Fund Interests of the same type held by the Securities Intermediary. On that basis, (a) the Fund Interest Account Assets do not include the Fund Interest itself, (b) a pledge by an Investor of Fund Interest Account Assets, including security entitlements, is not a pledge of a particular Fund Interest; and (c) and a pledge by the Investor of the Fund Interest Account Assets should not breach a prohibition on a pledge by a beneficial owner of a Fund Interest or a direct or indirect pledge of a Fund Interest. Indeed, if the Fund Interest Account Assets were deemed to include the Fund Interest itself, because each customer of the Securities Intermediary has an indirect pro rata interest in all such Fund Interests held by the Securities Intermediary, any pledge by any customer of its Fund Interest Account Assets would result in a breach of the pledge prohibition by each other customer of the same Securities Intermediary that has the same Fund Interests credited to its securities account, which is not a tenable outcome. Where the Fund Interest is in the Form of a Financial Asset Credited to a Securities Account, the Secured Party Should be Able to Enforce its Security Interest in the Fund Interest Account Assets, Without Obtaining Required Assenter Consent Where a Fund Interest is validly registered in the name of the Investor s Securities Intermediary rather than in the name of the Investor as legal holder, all rights of a partner or member under the applicable Fund Documents are vested in the Securities Intermediary and not the Investor. As discussed above, the agreement between the Investor and the Securities Intermediary will set forth the arrangements under which the Securities Intermediary agrees to follow the instructions of the Investor with respect to the Fund Interest. Where the Investor grants a security interest to the Secured Party in the Fund Interest Account Assets, the Investor, the Securities Intermediary and the Secured Party will enter into a Securities Account Control Agreement. Under this Securities Account Control Agreement, the Securities Intermediary will agree to follow the instructions of the Secured Party with respect to the securities account, the security entitlements with respect to the financial assets credited to the securities account and the financial assets relating to the Fund Interest
without the consent of any other person. This agreement perfects the Secured Party s security interest in all of these assets by control. The Securities Account Control Agreement also binds the Securities Intermediary to follow the Secured Party s, rather than the Investor s, instructions on the terms set forth in such Securities Account Control Agreement. The Secured Party may require that the Securities Intermediary follow only the Secured Party s instructions from the outset or only after the occurrence of certain contingencies, such as a default or event of default under the applicable financing agreement. The Securities Account Control Agreement should also specifically provide that the Securities Intermediary agrees (all quoted terms being defined under the UCC) (i) to act as securities intermediary and maintain the securities account as a securities account for the benefit of the Investor, as entitlement holder, (ii) to treat the Fund Interests and all other assets credited to the securities account as financial assets, and (iii) that its jurisdiction for purposes of Article 8 of the UCC is New York or another acceptable UCC jurisdiction, in each case to ensure proper treatment of the Fund Interest and other assets for purposes of Article 8 of the UCC. Against this backdrop, it is clear that even where the Secured Party accelerates the loan to the Investor and seeks to exercise remedies with respect to the financial asset relating to the Fund Interest, the Securities Intermediary will remain the legal owner of the Fund Interest and the Issuer will continue to deal exclusively with the Securities Intermediary, who after foreclosure on the security interest will be following the instructions of the Secured Party rather than the Investor with respect to the Fund Interest. During the term of the security agreement and even after enforcement of the security, the Securities Intermediary will continue to be the legal owner of the Fund Interest and to give the instructions to the Issuer. To avoid any Required Assenter consent requirements in liquidating the collateral, the Secured Party would instruct the Securities Intermediary to redeem the applicable Fund Interests in accordance with the Fund Documents (assuming voluntary redemption is permitted). For the Secured Party to instruct the Securities Intermediary to sell the Fund Interest rather than redeem would require the consent of the Required Assenter, as would any transfer (as opposed to redemption) of the Fund Interest by the legal owner thereof. To ensure that redemption as a means of liquidating the collateral is found to be commercially reasonable within the requirements of the UCC, the Secured Party should ensure that the Investor agrees in the security agreement that a redemption or withdrawal is a commercially reasonable disposition of collateral. [14] The Secured Party should also assess from a credit perspective the limits on and conditions for redemption requests, other Fund Document provisions that determine a partner s or member s redemption and other rights and the Issuer s track record of honoring redemption requests, to determine whether the Secured Party is comfortable with the timing and other risks of the redemption process where the Secured Party chooses to rely on redemption mechanics, rather than disposal mechanics, to liquidate collateral consisting of Fund Interests. Often, for example, the following restrictions will apply: lock up periods, gating requirements (which limit redemption requests to specified dates, such as quarterly), potential suspension of redemption/withdrawal rights depending on market or other conditions, notice requirements, and time delays in redeeming the Fund Interest after the delivery of an appropriate notice. Thus, it appears that the ability of the Secured Party to exercise remedies with respect to the Fund Interest are better
where the Fund Interest is registered in the name of the Securities Intermediary than where the Secured Party has not obtained Required Assenter consent and must rely on Section 9-408(a) of the UCC to allow the creation of security interest and still is restricted in its ability to enforce the security interest against the Issuer. Sabrena Silver is a Partner in the New York office of Linklaters LLP. Ms. Silver has substantial experience in a variety of complex financing transactions, both U.S. domestic and cross-border, and has represented financial institutions, equity sponsors, and capital users in leveraged buyout and other acquisition financings, general corporate financings, complex structured finance transactions, hedge fund financings, debt restructurings and single asset and portfolio non-performing loan transactions. Scott E. Waxman is a Partner at Potter Anderson & Corroon LLP, Chair of the firm s Business Group and a member of the firm s Executive Committee. Mr. Waxman also leads Potter Anderson s Structured Finance and Alternative Entity practice. The focus of Mr. Waxman s practice relates to commercial law and organizational and operational issues related to statutory trusts, partnerships, limited liability companies and special purpose corporations. Mr. Waxman serves on Delaware s Partnership Committee, which is responsible for drafting Delaware s partnership and limited liability company statutes. In addition, Mr. Waxman serves on Delaware s Statutory Trust Committee, which is responsible for drafting Delaware s statutory trust statute. [1] As discussed in further detail below, this is not the case in certain non-uniform UCC jurisdictions, including Delaware. 6 Del. C. 9-406, 9-408. Because many Issuers are organized under Delaware law, Delaware law governs the interpretation and construction of their Fund Documents. Notwithstanding which law might govern a given security agreement, Delaware law and Delaware law alone governs the validity of a purported transfer (which often includes a pledge) of an Investor s Fund Interest for Issuers organized in Delaware. As such, one must be familiar with Delaware s non-uniform provisions of the UCC. [2] Of course, the Investor may also arrange at the time of purchasing the Fund Interest for such Fund Interest to be held through a Securities Intermediary. [3] Although under the model provisions of the UCC adopted in most states, shares in corporations are automatically securities, see UCC Section 8-103(a), interests in partnerships or limited liability companies are only securities if certain conditions are met, see UCC Section 8-103(c). Under the model UCC provisions, a partnership interest or limited liability company interest is not a security unless (1) it is dealt in or traded on securities exchanges or in securities markets, (2) its terms expressly provide that it is a security governed by Article 8 or (3) it is an investment company security. As Fund Interests are not typically traded on securities exchanges and Issuers are not typically registered investment companies, a Fund Interest will generally constitute a general intangible rather than a security, in the absence of an Article 8 Election. [4] See UCC Section 8-503(b). [5] We assume, as noted throughout this article, that the Fund Interest is transferred to the Securities Intermediary in compliance with the Fund Documents in the first instance. [6] See UCC 9-406 and 9-408. [7] To the extent that a Fund Interest is considered to be a payment intangible (i.e., a general intangible under which the account debtor s principal obligation is a monetary obligation) rather than a general intangible (i.e., any personal property other than enumerated specified
categories), Section 9-406(d) would apply to invalidate restrictions on security in a similar manner and to a similar extent. In fact, Section 9-406(d) goes further by also negating restrictions on the enforcement of a security interest which Section 9-408(a) does not address. [8] See generally Payment Obligations and Other Property as Collateral: Contractual Restrictions on Assignment Rendered Ineffective by Article 9, by Lynn A. Soukup and Plamen I. Russev, 37 UCC L.J. 3 Art 2 (2005) at VI. [9] 6 Del. C. 17-101(12) and 18-101(7); see generally Payment Obligations and Other Property as Collateral: Contractual Restrictions on Assignment Rendered Ineffective by Article 9, by Lynn A. Soukup and Plamen I. Russev, 37 UCC L.J. 3 Art 2 (2005) at VI. [10] It is not entirely clear which state s law is applicable to the determination of whether an Applicable Assignment Restriction is rendered ineffective by the applicable UCC, but the most likely law to be applicable is the law of the jurisdiction of organization of the Issuer the Fund Documents which contain the Applicable Assignment Restriction. See generally Payment Obligations and Other Property as Collateral: Contractual Restrictions on Assignment Rendered Ineffective by Article 9, by Lynn A. Soukup and Plamen I. Russev, 37 UCC L.J. 3 Art 2 (2005) at IV; Official Comment 3 to Section 9-401. [11] See UCC Section 9-408(c). [12] It is conceivable that an Applicable Assignment Restriction could be drafted comprehensively enough to capture a situation like the one discussed herein in which an Investor is merely pledging a security interest in Fund Interest Account Assets. It is doubtful whether an Applicable Assignment Restriction, even if it were drafted broadly enough to purport to prohibit a pledge by an Investor of Fund Interest Account Assets, would undermine the creation or perfection of a security interest in such assets. The Investor would not be a party to the applicable Fund Document, there would be no contractual privity between the Issuer and the Investor and the assets pledged by the Investor generally consist of rights with respect to the Securities Intermediary and not the Issuer or the Fund Interest. Nonetheless, if an Applicable Assignment Restriction were drafted broadly enough to purport to prohibit a pledge by an Investor of Fund Interest Account Assets, there would likely be a breach of the applicable Fund Document, which could affect the value of the Fund Interest and, consequently, the value of the Fund Interest Account Assets (i.e., the pledged collateral). [13] As noted, supra note 12, it is possible that an Applicable Assignment Restriction could be drafted in such a way as to produce a different result. [14] The UCC provides that after default, a secured party has the rights provided in Part 6 of Article 9 and those provided by agreement of the parties, except as otherwise provided in Section 9-602 (addressing rights of a debtor and duties of a secured party that may not be varied by agreement). See UCC Section 9-601(a). Section 9-602(7) provides that the requirement that any disposition be commercially reasonable is not waivable. The parties may, however, determine by agreement the standards measuring the fulfilment of the rights of a debtor and the duties of a secured party under Section 9-602 so long as such standards are not manifestly unreasonable. See UCC Section 9-603(a). Agreeing that redemption of a Fund Interest as a method of disposition is commercially reasonable should be upheld by a court as not manifestly unreasonable.