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GE deal brings to mind the danger of assignment-consent and change-of-control clauses (for my students)

A couple of days ago General Electric announced that it was selling more than $30 billion of commercial loans to Wells Fargo. In the worst case, the relevant GE company might have to assign thousands of loan-related agreements to a Wells Fargo company — and that might require checking each of those agreements to be sure it didn’t have a provision requiring GE to get the borrower’s or guarantor’s consent before assigning the agreement. Such consents can be time-consuming to obtain, and might also be expensive if the consenting party sees the opportunity for a windfall.

I haven’t tried to find the details of how GE will effect the sell-off. I imagine that GE might simply sell a subsidiary to Wells Fargo (where the subsidiary owns the GE loan portfolio), possibly via a reverse triangular merger. That, though, brings to mind that some contracts include a requirement that Party A obtain Party B’s consent before any such transaction; if such a requirement were present in some of the GE loan agreements, then GE might still be faced with having to obtain consents.

As a practical matter, of course, none of the above scenarios is likely to occur in the GE case. A sophisticated lender will normally have made sure that it’s free to assign its loan-related agreements whenever it wants. In fact, such a lender might well have included a provision in its loan-agreement forms, expressly stating that the lender had the unfettered right to assign the agreement.

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