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?
Prior to any bid, a short-form debt commitment letter, together with a term sheet of the future financing arrangements, may be used. For closing, however, full documentation also covering the applicable security package is required. In the case of loan agreements, it will usually be based on the Loan Market Association standards.
With regard to public-to-private acquisitions, negotiated and signed loan agreements or firm commitments from lenders are to be in place when the public bid is launched, therefore meeting fund requirements (see question 29).
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 levels of actual commitment effectively depend on the transaction at stake and parties involved. Letters of intent for acquisition financing usually provide for underwriting commitments for the backing of the acquisition sponsor to pay out the applicable purchase price.
Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
Typical conditions precedent contained in the commitment letter do not differ from other jurisdictions, thereby including, among others:
- technical, legal and tax due diligence and other reports;
- third-party approvals and regulatory consents;
- execution of the acquisition and financing documents and creation of the envisaged security package;
- delivery of the borrower’s constitutional documents and resolutions of the relevant corporate bodies approving the transactions and appointing the officials entitled to represent the participating companies;
- delivery of legal opinions to the borrower and the lender issued by both parties’ counsel;
- verification of the correctness and accuracy of the representations and warranties;
- absence of any events of default, or of situations of market disruption or material adverse change; and
- certificates of compliance.
Furthermore, if a facility is disbursed in a segregated manner, as is general practice, the lenders may not be obliged to make the loan available unless, on each drawdown, new conditions precedent have been fulfilled, such as:
- accurate representations and warranties;
- no event of default having occurred; and
- the borrowers’ financial conditions remaining unchanged in line with forecasts.
The following specificities should be taken into account:
- acquisition and financing documents are usually not executed by means of a public deed. Notwithstanding, when the security package set up for the transaction includes security interest over real estate, it may demand the intervention of a public notary;
- when the execution of the transaction documentation involves signing by lawyers empowered by powers of attorney executed before a foreign entity, those powers of attorney should be legalised in advance by affixing an apostille pursuant to the 1961 Hague Convention and subsequently providing a certified translation of the documents; and
- legal opinions delivered by counsel for both parties usually cover matters on the capacity of the parties and the validity of the documentation, but may also include opinions on, inter alia, insolvency laws affecting creditors’ rights.
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
Flex provisions, other than on margin and tenor, are not very common under Portuguese law.
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 common feature in acquisition financing in Portugal, but requirements to increase collateral coverage may indeed apply, particularly when the acquisition relates to shares and listed companies. Nevertheless, transactions governed by New York law may include these commitments by the borrower and there is no legal restriction for them to apply.
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 element considered in an acquisition agreement for a lender in Portugal will be the adverse change clause. Additionally, we often find in this type of agreements a change of control clause, a pari passu clause and a negative pledge, among other covenants that may be negotiated by the borrower. The lender will wish to benefit from these clauses. Moreover, lenders will typically require control of the purchaser’s ability to amend or waive specific conditions on the acquisition agreement or assign any rights thereunder.
Lenders may also seek security over contractual rights in the acquisition agreement that enable the purchaser to seek recourse against the seller and, additionally, disclosure of that agreement to other lenders, if a syndication is foreseen.
Liability protections typically afforded to lenders in an acquisition agreement are realised through a declaration whereby specific information satisfies and protects the lenders’ interests.
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?
Portuguese law does not provide for mandatory disclosure requirements for the acquisition of private companies, neither by commitment letters nor by acquisition agreements. The acquisition of relevant participations in public companies requires specific disclosure. For privatisation cases, special rules apply, usually corresponding to a public tender or a request for proposals.
In any case, if antitrust clearance is required and obtained, the acquisition may become public, although some of the applicable details may remain private when so determined by the relevant competition authority.