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?

In most cases of acquisition finance parties use short-form commitment letters, also called letters of offer, which specify the main terms and conditions of the financing. It is generally accompanied by a term sheet setting out the terms of the loan.

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?

Most types of commitments incurred in acquisition agreements tend to be fully underwritten and occasionally in debt commitment letters they are of a conditional type.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

The condition precedent of commitment letters used for funding vary depending on the individual specifics of the transaction contemplated in the agreement, since the parties tend to adjust them to their specific case. However, some of the most common conditions precedent of commitment letters are fulfilment by the borrower of any mandatory legal requirements; receipt and provision of any authorisation, licence, permit or any other document as might be referred to in the commitment letter; fulfilment by the borrower of any obligation to any third party; entering into any other agreement as might be referred to in the commitment letter or fulfilment of any obligation of any other agreement that might have been referred to in the commitment letter; reconfirmation of the representations and warranties given in the commitment letter; and active, solvent and non-defaulting status.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

Flex provisions are not easily included in mutual agreements. However, commitment letters may occasionally contain these types of provisions and most of them relate to the possibility of the lender to adjust the loan amount, the interest rate or any other financial element of the loan in accordance and in proportion to changes in monetary policies, macroeconomic situation, central bank interest rates etc. One of the specific provisions incurred more often than not in bank loan agreements (by analogy) is the possibility of the second tier bank to consider the reference rates as zero, in case they fall below zero for the purpose of calculation of bank interest (for example: ‘Bank interest rate shall be calculated as: 12 month Euribor rate + X. In case the 12 month Euribor rate falls below zero, the parties hereby agree that the bank may consider it as zero for the purpose of calculation of interest rate in the above equation’).

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

Bridge loans have not seen significant use in Albania. However, regardless of their infrequent use, some of the securities demands contained in bridge loan agreements are mortgage collateral put on real estate of the borrower, securing charges, pledges etc. Less frequent usage has been seen with equities (of various types, mostly private and shareholders’ equity), while debentures are not common practice.

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?

Some of the key elements of acquisition agreements that are of relevance to lenders are the warranties and declarations of the parties (mostly of the borrower): the provisions relating to certainty of funds and payment of purchase price, closing deliveries and conditions to closing. Lack of financing out clauses, inclusion of the obligation to disclosure, penalties for noncompliance and regulation of outside date provisions in compliance to the interest of lenders are some of the liability protections given to lenders in acquisition agreements.

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?

Acquisition agreements are publicly filed with the National Business Centre and the Centre for Registration of Shares when underwritten, while commitment letters need not be filed.