USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
financial information in hand to syndicate the facilities. Bridge Loans In the case of bridge loan commitments (as com- pared to term loan commitments), it is typical to have a marketing period (often 15 consecu- tive business days) that commences upon the delivery of the required financial information and certain other customary information necessary to prepare an offering memorandum or prospec- tus for the contemplated debt securities. Both borrowers and lenders usually intend for debt securities to be issued in advance of, and in lieu of, the funding of the bridge facility, so the marketing period is designed to ensure that the investment banks engaged to lead the offering of debt securities have sufficient information for a sufficient period of time in order to place the securities. The SunGard Approach In the USA, an acquirer will often obtain com- mitted acquisition financing with very few con- ditions precedent to funding, particularly as it relates to the representations and warranties that must be accurate on the funding date. The approach to limited conditionality is commonly referred to as the “SunGard approach” . Under the SunGard approach, the only represen- tations and warranties in the definitive financing documentation – the accuracy of which serves as a condition to funding – are certain funda- mental “specified representations” (such as due authorisation and enforceability of the loan documentation) and certain representations and warranties about the target company contained in the acquisition agreement that are material to the interests of the financing sources, the accu- racy of which is a condition to the acquirer’s obli- gation to consummate the acquisition. Notably,
the SunGard approach requires the lenders to fund even if certain collateral (for example, real estate mortgages) cannot be put in place prior to the closing date. The interest rate on the facilities, and certain other fees that will be payable to all lenders, will usually be documented in the term sheet attached to the commitment letter. In contrast, fees that will be payable in part or in full only to the arrangers and their respective affiliates will usually be documented in one or more separate fee letters to protect the confidentiality of such information. Examples of fees payable in part or in full only to the arrangers and their affiliates include underwriting fees, transaction structur- ing fees and administrative agent and collateral agent fees. In a syndicated loan transaction, the fee letter will also include “market flex” provisions. Market flex provides the arrangers with the right to mod- ify the terms of the facilities that have been previ- ously agreed and are set forth in the term sheet attached to the commitment letter in a manner that is more “lender-friendly” in order to enable the arrangers to successfully syndicate the facil- ity. “Success” is determined based on whether the arrangers are able to sell down their position from the initial commitment levels set forth in the commitment letter to pre-agreed levels or below. Importantly, market flex does not afford the arrangers open-ended flexibility. Instead, the market flex section of the fee letter almost always provides a specific list of permitted changes, such as a specified increase in the interest rate, specified changes to the capital structure (for example, the ability to reallocate a specific amount of debt among different tranches), or the tightening of specified covenants and related “baskets” in the manner prescribed therein.
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