CANADA Law and Practice Contributed by: Scott Hyman, Anthony Spadaro and David Wilson, Davies Ward Phillips & Vineberg LLP
In general, the absence of committed financing with certain funds provisions is seen as being detrimental to the efficacy of any acquisition offer, except where it is obvious that the acquirer is of such financial standing that it has access to sufficient funds generally to complete the pro- A financing commitment is typically documented by way of “commitment letter” executed by the acquirer and its lenders, either shortly before or concurrently with the execution of the definitive acquisition agreement. A typical commitment letter will evidence the binding several (not joint) commitment of each lender to fund its agreed portion of the acquisition financing. It will also contain the following, among other terms: • provisions describing the obligation of the arrangers of the financing to syndicate the credit exposure of the initial lenders commit- ting to finance the acquisition transaction; • a summary of the contemplated transaction structure; posed transaction. Commitment letter • the sources and uses of cash available to fund the acquisition transaction, including a description of any other types of financing intended to be completed in connection with or prior to the completion of the acquisition; • confidentiality terms; and • indemnities to be provided to the committed lenders. Term sheet A commitment letter will also typically be accom- panied by a term sheet describing the key com- mercial terms of the financing, including the fol- lowing: • the amount, type and term of the financing;
• any required amortisation, pricing, mandatory and voluntary prepayment terms; • credit support; • security; • key restrictive covenants, including limits on debt incurrence, encumbrances, distributions and asset dispositions;
• related party transactions; • corporate reorganisations; • financial covenants; and • conditions to closing. Fee letter
The commitment letter will also often be accom- panied by “fee letter” , which sets out the fee arrangements between the prospective pur- chaser and the arrangers of the financing. The letter details the arrangement fees payable to the arranger, the upfront fees payable to the lenders and, depending on the duration of the commitment period, “ticking fees” to compen- sate lenders who maintain their commitments on an unfunded basis, typically for a period longer than 60 to 90 days from the date of the commit- ment letter. For committed bank acquisition finance trans- actions, fee letters will also often include what is commonly referred to as “market flex” terms, which give the arrangers of the financing the ability to alter the structure of the proposed acquisition financing, change the term and amortisation of the credit facilities and increase the compensation to the lenders providing such financing. This can be done in the form of increased upfront fees or wider credit spreads, as necessary to successfully syndicate or diver- sify the credit risks to the initial lenders agreeing to underwrite the financing of the transaction. What constitutes the “successful syndication” of an acquisition credit facility is a matter to be
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