Debt commitment letters and acquisition agreements
Types of documentation
What documentation is typically used in your jurisdiction for acquisition financing? Are short-form or long-form debt commitment letters used and when is full documentation required?
Typically, standard facility agreements, which are based on relevant LMA templates, are used in acquisition financing transactions. In certain instances, where the facility amount is not substantial and the tenor is short, disbursements may be made on the basis of a short- or long-form debt commitment letter. Such commitment letters may have a detailed term sheet annexed to them or may be in the form of short- or long-form term sheets executed by the parties. It is also useful to note that the aforementioned commitment or offer letters typically have clauses that contemplate definitive documentation, such as facility agreements. However, in some instances, banks may proceed to lend on the basis of commitment letters or offer letters only.
Level of commitment
What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?
The level of commitment usually given by Nigerian lenders in debt commitment letters is on a best-efforts basis. However, in rare instances, the commitment may be fully underwritten.
Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
As commitment letters or offer letters are not as extensive as facility agreements, the conditions precedent listed in them are also not very extensive. The lenders would typically request for the most basic requirements upon which credit committee approval was obtained (or will be obtained) for the transaction. Apart from other specific conditions that may be requested because of the nature of the asset or the borrowing, generally conditions precedent to funding under the commitment letter or offer letter include, but are not limited to:
- corporate authorisations such as board or shareholder resolutions;
- executed copies of transaction documents including security documents, share or asset purchase agreement etc;
- closing legal opinions;
- recent financial information on the borrower; and
- evidence that relevant regulatory or third-party consents or approvals have been obtained.
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
Flex provisions may be used in commitment (or mandate) letters. The provisions that are often subject to modification in respect of flex provisions are pricing terms and the reallocation of amounts between tranches (where applicable).
Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.
Securities demands are not a key feature in acquisition finance in Nigeria.
Key terms for lenders
What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?
Subject to the nature of the acquisition (ie, share, asset or business acquisition), lenders will typically be concerned with provisions of the acquisition agreement that relate to the scope of representations and warranties given by the seller under the relevant underlying transaction document. Additionally, lenders also consider the remedies for breach of contract and the indemnity provisions of the acquisition agreement, particularly with respect to the extent to which the seller shall be liable to indemnify the buyer in the case of any breach occasioned by the seller.
As the lenders are typically not parties to the underlying acquisition agreement, they may not get the benefits of the indemnities provided by the seller to the buyer; however, under the acquisition financing agreement, it is possible for the lender to create security over the assets that are being acquired or require the buyer to assign the benefits of the indemnities and or guarantees given to the borrower under the acquisition agreement.
Public filing of commitment papers
Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?
Commitment letters are typically not filed at the companies’ (or other public) registry in Nigeria. However, where the acquisition is a takeover or an acquisition requiring the approval of the SEC, the relevant acquisition agreement is to be filed at the SEC, and the commitment letters may be filed as ‘evidence of source of funds’.