Debt Financing From A Lender Or Group Of Lenders Essays

Debt Financing From A Lender Or Group Of Lenders Essays

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Many acquisitions are funded, at least in part, through debt financing from a lender or group of lenders. When a buyer contemplates using third party financing to pay all or any part of the purchase price for an acquisition, the seller should obtain a representation from the buyer relating to the buyer’s financial ability to consummate the acquisition. In connection with making the representation, a buyer typically provides the seller with copies of documentation relating to the financing. The documentation allows the seller to understand the terms of the financing, including any conditions thereto.
Drafting a Financial Ability Representation
The following bullet points detail various components that are customarily included in a buyer’s financial ability representation.
• Financing Documents. As mentioned above, one of the key aspects of the buyer’s representation is that the buyer has provided the seller with true and correct copies of all of the financing related documents that exist at the time the acquisition agreement is signed. This includes equity and debt commitment letters, fee letters and engagement letters relating to any proposed issuance of debt securities that are part of the debt financing.
One point of negotiation, which will be reflected in the representation, is whether a redacted version of the fee letter between the buyer and the lenders will be presented to the seller and what information from the fee letter will be redacted. Since fee letters contain confidentiality provisions, a buyer will not be able to provide the seller with an unredacted version of the letter without the lenders’ consent. Typically fee letters include not only the amount of fees payable to the lenders but also other potential...


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...on or otherwise provide it with a “walk right”. See sub-clause (a) of the model representation.
• Solvency. In the context of leveraged buyout (LBO) transactions, the financial ability representation may be bundled with a representation that after giving effect to the proposed acquisition, the acquired entity will be solvent. A solvency representation will be drafted in a manner that is consistent with applicable state and federal fraudulent transfer laws and in light of certain case law finding that aspects of LBO transactions may be challenged as fraudulent transfers. Such representations will thus include not only a balance sheet test but also statements to the effect that the entity will be able to pay debts as they become due and that it will not have unreasonably small capital. See “Additional Representation on Solvency” for a model of this representation.

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