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?
A short-form debt commitment letter together with a term sheet (not necessarily well detailed) is the documentation usually required prior to the relevant bid. Full documentation is required for closing.
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?
This depends on how strong the position of the sellers may be while negotiating with the potential purchasers. If they are in a very strong position, they usually require fully underwritten commitments or club deal structures with commitments by each of the members of the club deal.
Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
Typical precedent conditions are those included in the term sheet, which are usually, among others:
- executed finance documentation;
- delivery of copies of constitutional documentation, corporate resolutions and financial and know-your-customer information of the obligors (their accuracy being certified by authorised signatories of the obligors);
- accuracy of representations and warranties;
- issuance of power and capacity and validity and enforceability of legal opinions;
- acquisition documentation satisfactory to the lenders; and
- no material adverse event or breach of provisions under the finance documentation.
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
Flex provisions are not very common in the current market under Spanish law. Margin and tenor were once the terms typically subject to such flex.
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 financing in Spain. However, some transactions subject to New York laws have included these commitments by the borrower.
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?
Lenders will typically look at conditions to closing being consistent with ‘certain funds’ conditions and at the assignability of any claims of the borrower in relation to the sellers.
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 and acquisition agreements are not filed with any Spanish public registry, although they are normally formalised before a public notary, who would keep them in his or her files. The files are not accessible to the public, with the exception of parties or public authorities alleging and proving interest in their content.
In addition, when antitrust clearance is required, the acquisition agreements are filed with the antitrust authorities, who would make public the fact that the transaction is taking place, without giving information on the specific contents of the acquisition agreements. In public mergers and acquisitions, certain provisions of the acquisition agreements might need to be disclosed to the market, mainly if they include put or call options or restrictions on the sale of shares.