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 term sheet containing the commercial terms is usually agreed between the lender and the borrower as a first step. In a private transaction, the credit agreement is then often entered into in connection with signing of the relevant acquisition agreement, with the security documents and other finance documents being signed on closing. The process may vary, however, depending on, inter alia, the commercial relationship between the parties.
As mentioned in question 4, in a public bid the bidder will typically have secured financing in connection with the announcement of the bid through either credit-approved commitments and signed commitment letters or full finance documentation (depending on the size of the transaction, the relevant bidder and the governing law of the financing).
The loan documentation in large-cap transactions is typically drafted in English and based on the Loan Market Association’s template, adjusted for Swedish market standards. For small and mid-cap transactions, the loan documents, which are typically on a bilateral (or club deal) basis, are often similar to the documents used for large-cap transactions, but shorter and less detailed. They may also be drafted on the basis of the lenders’ in-house templates and sometimes in Swedish, although English is the prevailing language for most financing transaction documents.
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 the strength of the seller’s bargaining position, although a fully underwritten commitment letter is common, especially in competitive processes and controlled auctions. If the acquisition documents are not made subject to the financing being in place at closing, the purchaser will often require a fully underwritten commitment letter from the lender(s) in order to ensure that there are sufficient funds available.
Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
Typical conditions precedent include constitutional documents, corporate authorisation documents, executed finance documents, know-your-customer documentation and legal opinions regarding capacity, validity and enforceability. The conditions precedent are usually included in the credit agreement and can be divided into separate parts for signing, delivery of utilisation request and drawdown. If the financing is provided on a certain funds basis, only conditions which are effectively within the bidder’s control can be included in the commitment letter.
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
With the exception of market flex provisions in relation to pricing to ensure a successful syndication, flex provisions in commitment letters are rare in our experience, but they are possible and up to the parties to agree upon.
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 do not play a key role in acquisition financing in Sweden, but may exceptionally occur in larger international-style finance transactions where the intention is to have bonds as the long-term financing for the acquisition, which is rare.
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?
The key elements in acquisition agreements that are relevant to the lenders would typically be:
- certain representations and warranties regarding the acquired shares, such as them being sold free and clear of any encumbrances;
- the provisions regarding the purchase price and the refinancing of any existing debt;
- the provisions governing the assignment and transfer of any rights under the acquisition agreement, in order to ensure that the purchaser or borrower may grant security to the lenders over such rights; and
- the provisions regarding the right to make claims against the seller under the acquisition agreement.
In Sweden there are limited, if any, liability protections afforded to lenders in 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?
No, the commitment letters and acquisition agreements are not publicly filed in Sweden and are therefore not made public.