M & A Practice Guide Excerpt: Acquisition Financing

 
 
Excerpt:
 
§ 7.04 Terms Included in Commitment Papers
 
After a prospective lender has evaluated the legal and commercial implications of a proposed financing, a prospective lender is ready to prepare commitment papers for presentation to the buyer and the seller. In addition to the economic terms of the proposed financing, commitment letters set forth the conditions precedent that must be satisfied before the committing lender will provide the proposed financing. An informed seller will want to understand and, to the extent feasible, influence the conditionality that must be satisfied before a committing lender will provide the contemplated financing. Sellers should view the conditions to the proposed financing with
as much concern as the conditions to the buyer’s obligation to close the acquisition in the acquisition agreement itself. Furthermore, commitment letters also will specify actions required to be taken by the seller and its representatives to facilitate syndication of the proposed financing.
 
There are no unconditional commitments to provide acquisition financing. From a seller’s perspective, the conditions in a commitment letter should mimic the conditions to consummation of the acquisition that are set forth in the acquisition agreement, with only such changes as are necessary to give effect to the fact that the lender is a financing source rather than the buyer, and therefore has unique concerns that must be addressed. 
  
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