In January, Otterbourg P.C. announced that Ikhwan A. Rafeek had been promoted to Member of the Firm in the Banking and Finance Group. Rafeek represents institutional lenders, banks, commercial finance companies, and factors in connection with the documentation of domestic and international secured lending arrangements, including asset-based, factoring, term loan, healthcare, real estate, middle market, leveraged, and first and second lien loan transactions. He also frequently represents secured lenders in workouts and restructurings and in portfolio acquisitions and dispositions.

Rafeek was named as a "Rising Star" by Super Lawyers Magazine in 2019. He is a member of the New York State Bar Association. He earned his J.D. from St. John’s University School of Law in 2008 and his B.A. from City University of New York – Baruch College in 2005.

Tell us a bit about your career trajectory.

I have worked in the banking and finance group of my law firm, Otterbourg P.C., since graduating from law school in 2008.  Our firm has strong ties to the lending and secured finance industry.   These ties have allowed me the opportunity to work and develop experience with almost every lender in the industry.  I’ve also been fortunate to work with attorneys who are some of the foremost experts in the industry.  These attorneys have been invaluable mentors and resources for developing my practice.  

My practice encompasses a range of markets and lending products.  I represent commercial finance companies and local banks with products such as factoring, receivables purchase, and credit lines provided to lower and middle market borrowers.  I also represent large banks in complex syndicated transactions.  This experience of working across markets and products has allowed me to develop an understanding of the nuances and challenges which accompany each of type of transaction, which in turn allows me to provide meaningful and practical legal solutions which are appropriate to the deal size and structure.

I’ve also worked to develop a network of contacts within the secured finance industry over the course of my career.  An essential component of this has been attending industry events, such as events held by SFNet.  Many of the people I’ve met at these events have become not just business contacts, but also my friends.  For me, being able to work with people who are also friends has been a key factor for enjoying the work that we do.       

What are the top legal issues lenders need to be aware of in 2020?

Three legal issues affecting commercial finance lenders in 2020 are new disclosure requirements in California for small business loan providers, the new small business Chapter 11, and LIBOR replacement.

In early 2019, California adopted a law which would require certain non-bank commercial finance providers to make additional disclosures to commercial loan customers.  This law applies to commercial financing offers of $500,000 or less, and would include providers of financing products such as accounts receivable purchase and factoring facilities, asset-based loans, commercial loans, and merchant cash advances. Under the law, providers are required to disclose to customers the total amount of funds provided or amount financed, the total dollar cost of financing, the term or estimated term, the method, frequency, and amount of payments, a description of prepayment policies, and the total cost of the financing expressed as an annualized rate. Recognizing that certain of these metrics may be difficult or impossible for certain providers to calculate, the law permits providers of factoring and asset-based loans to make disclosures based on an example of a transaction, if they offer the customer an agreement that describes only general terms and conditions.  Of course, calculation of the amount financed or cost of finance for factoring facilities or revolving asset-based facilities may still prove to be challenging.  In addition, other financing products, such as merchant cash advances, may also not fit into the standard disclosure metrics.  While compliance with the law is not required until regulations are finalized by the California Department of Business Oversight, the new disclosure requirements are a major concern for commercial lenders in California.  Similar disclosure laws have been or about to be introduced in various states.  SFNet has sought to bring clarity to this issue, and we continue to be supportive of SFNet’s initiative to do so.  

In 2019, Congress passed a new subchapter of Chapter 11 to make Chapter 11 bankruptcy more accessible for small businesses.  This law goes into effect in February 2020 and would apply to business debtors with debt of less than $2,725,625.  The cost and complexity of traditional Chapter 11 filings have historically posed challenges for small business owners to take advantage of bankruptcy reorganization.  The goal of the changes are to make the bankruptcy process more streamlined and cost-effective for small businesses.  These changes include, among other things, the court appointing a trustee to oversee the bankruptcy, the removal of creditors’ committee approval from the reorganization plan, and allowing business owners to retain their equity interests in the business even if the creditors are not paid in full or new value is provided so long as the reorganization plan is fair and equitable.  As a result of these new laws, lenders may find that more of their smaller loans will end up in Chapter 11 proceedings rather than non-bankruptcy workouts and liquidations.  In addition, if the implementation of the new laws are successful, then there is a possibility that Congress will increase the threshold to a higher dollar amount.  

With LIBOR phasing out in 2021, lenders need to find alternatives for replacing LIBOR.  The Alternative Reference Rate Committee (ARRC) was formed to provide suggestions to lenders for adopting a new rate.  During the spring of 2019, the ARRC released two sets of recommendations for syndicated loans and bilateral loans, with recommended language for replacing LIBOR with SOFR or an alternative benchmark rate.  Most large financial institutions have already begun to roll out versions of the recommended language to be applied on all lending transactions utilizing LIBOR.  During 2020, all lenders which have loans that utilize LIBOR should ensure that they include LIBOR Replacement language in their loan documentation.

As a partner of the firm, what are your top goals?

In addition to continuing our firm’s long history of providing excellent legal services to our clients, one of my key goals as a partner at Otterbourg is to continue to build a network with my contemporaries in the commercial lending space.  There are a whole host of young people moving up the industry, and a tremendous opportunity for us to build beneficial connections with professionals in various areas, from lending, to legal, to accounting, to collateral analysis, and everything in between. 

Furthermore, one of my goals is to continue to promote further diversity in the legal industry. I am a first-generation immigrant to the U.S.  I am also a member of Otterbourg’s Diversity and Inclusion Committee and work with my law school, St. John’s School of Law, in their programs which promote diversity at the law school.  As the landscape of people in business changes in the twenty-first century, it is important to me that the legal industry keeps pace in providing opportunities for people from diverse backgrounds.  I strive to be a resource and mentor for young people, and it is one of the most rewarding aspects of my career.