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?
Depending on the transaction type, lenders may issue short-form letters of intent to state their intention of funding or participation in syndications and to indicate substantial commercial terms, such as interest rate and maturity, which shall be subject to certain conditions (ie, satisfactory legal and financial due diligence). Full documentation, such as general credit agreements, facility agreements and intercreditor arrangements drafted in line with Loan Market Association (LMA) standards and security agreements, is required concurrently with the acquisition documentation. For cross-border financing, facility agreements have become standardised by practice, and Turkish lenders also tend to comply with international standards, as Turkish borrowers have become familiar with the LMA during the past decade.
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?
Letters of intent, mandates and term sheets do not generally include commitments or constitute binding effect on lenders’ part (ie, non-binding and uncommitted) and basically state lenders’ intention of funding on a best effort basis. Facility agreements include commitments and conditions of funding required by lenders subject to satisfaction of certain conditions precedent.
Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
Preliminary documents (ie, letters of intent, mandates and term sheets) usually include conditions precedent, such as satisfactory legal and financial due diligence, satisfactory acquisition documents, regulatory approvals, financial close within a certain period and project-related representations and warranties.
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
Turkish banks generally require flex provisions, which enable lenders to amend amounts, pricing, structure, maturity and other financing terms. Under Turkish law, such provisions are deemed as general conditions that are prepared unilaterally by one of the parties (ie, lenders) with the purpose of using them for similar contracts without holding any discussions or negotiations with counterparties. General conditions are heavily regulated under the Turkish Code of Obligations, albeit the review of commercial agreements is not scrutinised as strictly as consumption agreements.
Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.
In Turkey, securities demands do not constitute a key feature in acquisition financing and lenders do not generally require borrowers to issue securities regarding bridge loan facilities.
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?
Key elements that are relevant to lenders are the conditions precedent and subsequent specified for signing and closing of acquisition transaction, detailed descriptions of collateral granted to lenders by the borrower and target company, representations, liabilities, indemnifications and warranties of the seller and purchaser and payment mechanics regarding sale proceeds. Lenders would request to some extent that the acquisition be completed swiftly, and they would like to be assured that the acquisition will not be reversed for any legal or commercial obstacles (including for any governmental authority approvals etc).
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, letters of intent, mandates, term sheets or financing agreements are not required to be publicly filed in Turkey. As with acquisition agreements, filing requirements differ between joint stock and limited liability companies. In limited liability companies, acquisition agreements should be executed before a notary, a general assembly resolution approving the transfer should be registered before the trade registry and the transfer should be registered in the company’s share ledger. In joint stock companies:
- if no share certificates are issued, the parties should execute the acquisition agreement in writing and register the transfer in the company’s share ledger;
- if bearer shares are issued, the transfer will be effective upon delivery of the possession; and
- if registered shares are issued, the transfer will be effective upon endorsement of the share certificates, delivery of possession and registration of the transfer in the company’s share ledger.
Share transfers resulting in a shareholding exceeding or dropping below five, 10, 20, 25, 33, 50, 67 and 100 per cent should be registered before the trade registry and published in the Turkish Trade Registry Gazette. For listed companies, the execution of financing or acquisition agreements may be deemed as information that should be disclosed to the public, as they may have an effect on value and price, and accordingly on investors’ decisions.