Financing Contingencies in Merger Agreements: Negotiating Buyer Reps, Target Covenants, and Commitment Letters

Recording of a 90-minute premium CLE video webinar with Q&A


Conducted on Wednesday, May 26, 2021

Recorded event now available

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Program Materials

This CLE webinar will analyze buyer reps and warranties, target company covenants to cooperate, and other terms typically included in M&A agreements to address financing contingencies. The panel will also discuss the negotiation and drafting of the financing commitment between the buyer and its lender and how the commitment is reflected in the merger agreement.

Description

Financing conditions are critical in a merger transaction, providing assurances to the target that the buyer has sufficient funds to close and assurances to the buyer that the target will cooperate as needed to close the financing. The financing commitment is a critical component in the transaction and figures heavily in negotiating and drafting those provisions.

Since the buyer faces potential liability if it fails to close, counsel must seek certainty in drafting the financing commitment. The commitment letter should be precisely worded and contain a detailed list of all material conditions and expressly state that they are the only conditions to close. If the financing involves multiple lenders, intercreditor terms may need to be negotiated as well.

Care must be taken in drafting buyer financing representations in the merger agreement. They will typically relate the enforceability of the commitment, the financing conditions, and the adequacy of loan proceeds to close.

Successful financing will depend on the cooperation of the target in loan closing. The cooperation covenant is often heavily negotiated, balancing the target's interest in minimizing the amount and type of information provided against the lender's need to conduct adequate due diligence.

Listen as our authoritative panel discusses these and other concerns about financing commitments and related provisions in merger agreements.

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Outline

  1. Financing commitment letters
    1. Loan terms that should be included in the commitment
    2. Conditions precedent
    3. Confirming sufficiency of funds
  2. Financing conditions in merger agreements
    1. Buyer reps and warranties
    2. Target covenants
  3. Bridge financing and related representations

Benefits

The panel will review these and other critical questions:

  • Why is specificity in M&A financing commitments so important in contrast to other commercial financing transactions?
  • What kind of input might the target have in negotiating a financing commitment?
  • To what extent are buyer financing reps and warranties affected by the financing commitment?
  • What does the lender typically require in its due diligence of the target, and how is that reflected in the commitment and the merger agreement?

Faculty

Campana, Kristen
Kristen V. Campana

Partner
Morgan, Lewis & Bockius

Ms. Campana represents a wide variety of direct and alternative lenders, particularly those involving private sources...  |  Read More

Schernecke, Matthew
Matthew Edward Schernecke

Partner
Morgan, Lewis & Bockius

Mr. Schernecke advises second lien and mezzanine investment funds on loans and other investment transactions with a...  |  Read More

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