Debt Commitment Letter Flashcards
• What are examples of lender protections outside of covenants?
o Material adverse effect clauses – If an unexpected event occurs, the lender can reneg on its initial commitment
• What are the most important elements as it pertains to the debt commitment letter?
o Covenants – Rules for borrower to abide by
o Flex Language
o Relevant “Outs” / Conditions Precedent
• What is the difference between a maintenance and an incurrence covenant?
o Maintenance – The borrower must comply with such covenant e.g. financial regardless of any specific action
o Incurrence – Only applies if borrower is taking a specific action e.g. if they want to raise additional debt
• What is flex and why would you do this?
o Ability to change debt terms
o Common in syndicated financings. If bonds are undersubscribed, they will raise the bond price the sponsor pays
• What is an “Out”/ Condition precedent?
o Certain conditions/ terms must be met for lender to lend funds
• What is a swingline?
o Sub component of a revolving credit facility that you can access immediately
• What are the types of CPs you try and avoid?
o Things outside of control. Mainly third party controlled.
• What is the Grid in a Deal Commitment Sheet?
o Shows the lower rates paid as leverage (Debt/EBITDA) falls over time in a deal
• What is a good high level breakdown of a pre LOI IC Memo?
o Detailed breakdown of business o Review of Business Diligence Findings o Findings from Accounting and Legal Diligence o Summary Return Profile o Full Model
• What are the sellers most concerned about at the LOI stage?
o Price o Certainty of close o Signed financing commitment o Working capital targets o Credibility of sponsors bid
• What is achieved at LOI stage for buyers if accepted?
o Exclusivity
