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POLICY QUESTIONS
Raised by Comments- on July 4, 1944 Drafts of
Termination Guarantee .and Loan Agreements

Administration . f Loan, - The guarantee agreement gives the Financo.
ing Institution the right to require the Guarantor to take over the administration of the loan only in the event of a voluntary purchase by the Guarantor.
Should section 5 of the agreement be amended to provide that in any case in which
the Guarantor has become the purchaser of fifty per cent or more of the obligation, the Financing Institution shall have the option of requiring 'the Guarantor
to assume the administration of the loan? (See comment (27))»
2. Step-up of Guaranteed Percentage on Failure of Guarantor to Sue. If the Guarantor disagrees with the action of the Financing Institution in suing
or failing.to sue on the loan, it may itself take over.the administration of the
loan by voluntary purchase under section 4; but the Financing Institution has no
corresponding protection in the event of its disagreement with the actions of
the Guarantor. Should provisions similar to those of sections 12 and 13 of the
April 6, 1943 form of guarantee agreement be included, in the revised draft so
that the Financing Institution could obtain a 100% guarantee in the event of the
Guarantor's refusal to sue or consent to suit or upon its refusal to accelerate
the maturity of the loan? (See comment (30)).
Cross-Lien Provisions. -Should the guarantee agreement include
provisions like those of section 10(B). of the April 6,, 1943 form with respect
^o the sharing of the proceeds of collateral received by the .Guarantor? (See
comments (61) and (62)).
4. Objection to Contracts Added to Exhibit C. - Should thé right of
the Borrower to add terminated war contracts to Exhibit- C be subject to the
prior approval of the Fina-nqing Institution or should the -Financing Institution
merely have the right to abject? Should the Guarantor have the right to object
or merely the right to concur in the financing Institution
much time s.hould the Financing Institution and the Guarantor bé ¿llpWèd in which
to act? In any event,, should there .b some provision prohibiting the addition
.e
of nonassignable contracts? (See comments (72), ' (73), (76), (79) and ($2)).
5. Optional Assignment of Collateral. » Should paragraph 5 of the
loan agreement provide for optional, instead'of mandatory* assignment of contracts? If this is desired, the following provision might'be' substituted for
the first two sentences of paragraph 5:
"Prior to any borrowing hereunder, or at any time
thereafter, upon request of the Financing Institution
or the Guarantor, the Borrower will assign to the
Financing Institution as security for the loan all moneys
due and to become due on such of the Borrower's terminated
war contracts as are specified in such request and as the
Borrower by using its best efforts can assign.11
(See comments (I20)r (123), (126), (131) and (133)).




(Over)

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6* . Pledge of Termination Inventory for Unguaranteed Side Loans« In the event thot a financing Institution has made an unguaranteed production
loan to the Borrower on the security of live contracts and such contracts are
later terminated, should ^he side loon be permitted to cdntiriue along with a
guaranteed termination loan? ¿s now worxied, the lust sentence of paragraph 5
of the loan agreement prohibits the Borrower from suffering termination inventory to be encuntoered for more than _ _ d a y s , except as provided in
Exhibit D. Cons equent ly, Exhibit D, in exceptional Gasesa might containprovisions expressly permitting the encumbrance of termination inventory in cases
of this kind» The possibility of such a provision in Exhibit D may result in
additional negotiations, and for this reason the present provision may be objectionable» Also involved is the question as to the. degree of discretion which;
the Services will exercise in permitting such a provision. (See comments (57),
(122) and (133))»
7. Failure of Borrower to File Claim within 120 Bays'. ~ Under the
Loan Formula Certificate the borrower is prohibited from borrowing on any contract as to which he has not filed,claim within 120 days from.the effective
date of termination, even though he files such a claim after the expiration of
that period. Is it intended that the 3orrpwer shall be forever prohibited from
borrowing on such a contract? (See coifiments (229), (235), (271) and comments
3 and 4 of Harris Trust and Savings Bank, Chicago, Illinois.)
8. Commitment Fee. - What should be the maximum commitment fe$?
Seven of the Federal Reserve Banks favor l/4 of 1% with the entire amount retained by the Financing Institution; five Federal Reserve Banks favor l/2 of 1%
shared-with the. Guarantor. Comments from the commercial' banks indicate that the
maximum of l/2 of 1% is favored by fourteen banks and the maximum-of l/4 of 1%.
by four banks. (See comments (272)-(305)).
9. Simplicity of Procedure. - To whit extent should instructions provide tot expediting the consummation of termination guarantees? The fear is
expressed thatthe procedure for making termination guarantees will be. .too
complicated; and'it is suggested that such guarantees should not be made. .Upon
a credit basis and that.the standard loan agreement should .represent the maximum as Weli as the minimum requirements of the Government. (See comments (ll)
and (6b)).
10. Spheres<of Use« - it is suggested that the scope and permissive
use of V loans, V-T.loans, and T loans should bo clearly defined.(See comment(l5)).
11. Use of a Single Form. - Could the April 6, 1943 form, with certain,
necessary modifications, be used for both V loans and T loans? As an alternative
could the proposed draft of termination guarantee agreement, with certain modifications, be used for V loans as well as T loans? (See comment 17)).