USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
lender receives payments free of withholding taxes and other costs (or receives “gross-up” payment for such amounts). The credit agree- ment will also include a governing law section, which is almost always the laws of the state of New York. The primary definitive documents for the issu- ance of debt securities are the offering document provided to potential investors, the indenture and the notes. In a public offering of securities registered with the US Securities and Exchange Commission (the SEC), the offering document is known as a prospectus. In a private offering of securities made pursuant to an exemption from SEC registration requirements, the offering document is known as an offering memorandum or offering circular. In either case, the offering document will include significant information about the issuer, including information about its business, risk factors, industry, financial state- ments and other financial information (including non-GAAP/IFRS key performance indicators), and management’s discussion and analysis of the financial results, liquidity and cash flows of the business. The offering document will also include the proposed terms of the debt securi- ties in a section called “Description of Notes” . If the acquirer has obtained a commitment for a bridge facility, the proposed terms of the debt securities will be based on the terms set forth in the bridge term sheet attached to the com- mitment letter (or as may be otherwise agreed between the issuer and the investment banks, including certain terms that the investment banks agree to attempt to achieve on “best efforts” basis), and such terms usually refer to an agreed precedent indenture. After the offering document is distributed to potential investors, any changes to the terms
therein are documented in a supplement. At a minimum, a pricing supplement will be distrib- uted to investors reflecting the final economic terms, including interest rate, interest payment dates and stated maturity date. The terms reflected in the “Description of Notes” , as sup- plemented by the pricing supplement and any other supplements, are then documented in the indenture and the notes. The indenture is the legally binding agreement executed by the issuer (and the guarantors, if applicable) and a trustee, on behalf of the bond- holders, that sets forth the terms of the debt securities, including the payment obligations set forth in the notes. The main provisions of an indenture include: • the definitions of relevant terms, including financial terms;
• affirmative covenants; • negative covenants; • redemption provisions; • amendment provisions; • events of default; and • other miscellaneous provisions.
The indenture will also include a governing law section, which is almost always the laws of the state of New York. Many of these sections are consistent with the corresponding sections found in credit agree- ments. One difference is that the affirmative cov- enants in an indenture are generally less oner- ous than in a credit agreement. In an indenture, the affirmative covenants are typically limited to basic requirements such as: • the maintenance of corporate existence;
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