Some factors that courts have considered when analyzing whether a vendor financing agreement is a "financial accommodation contract" for the purposes of Section 365 include the following:

Whether the lender's obligation to provide financing to individual dealers is included in the vendor financing agreement, or is set forth in independent and distinct dealer financing agreements;
Whether the obligation of the lender to extend financing to any specific dealer is absolute, or is subject to the lender's discretion;
The extent to which provisions of the vendor financing agreement are predominantly administrative in nature, including the lender's obligation to maintain a dedicated portfolio management team or prepare reports for the debtor;
Whether the vendor-financing agreement could be characterized not as an obligation of the lender to provide financing, but as a right of first refusal in favor of the lender to provide financing to dealers under any new dealer-financing agreements; and
Whether, in focusing on the nonfinancial provisions of the vendor-financing agreement, the financing provisions could be determined to be "merely incidental" to the entire arrangement.

In light of the fact that vendor-financing agreements typically provide financing to the dealers, and not directly to the manufacturer/debtor, the question of whether such financing is "for the benefit of" the manufacturer/debtor has also been the topic of debate in bankruptcy courts. Among other things, bankruptcy courts will look to the specific language of the vendor financing agreement to determine the specific financing or financial accommodation being provided for the benefit of the manufacturer/debtor, including the exact nature of the benefit the manufacturer/debtor is receiving in its business operations or otherwise.

Instant Insights /

Vendor-Financing Agreements and Financial Accommodations Contracts in Bankruptcy

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