Debt commitment letters and acquisition agreementsTypes 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?
The purchaser will rarely commit to an acquisition before the financing is in place. At the same time, lenders tend to favour being uncommitted or retaining various opt-outs. The commitment will usually be in the form of a short-form commitment letter and may be accompanied by a short-form term sheet. Where multiple purchasers are involved, best practice includes an agreed form of facilities agreement or at the very least a negotiated long-form term sheet subject to documentation. If the target is a publicly listed company, the Danish Executive Order on Take-Over Offers will for all practical purposes require the purchaser to have certain funds available and thus full documentation in place at the time the offer is made. The reason for this is that the offer to be registered with the Danish FSA will include a description of the financing, which cannot be conditional.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 level of commitment is a commercial matter and will depend on the relative bargaining positions of the parties and the ticket size of the transaction. As a rule of thumb, the larger and the more complex an acquisition, the higher the level of commitment. For small to mid-sized ticket transactions, the commitment will usually hinge on a single lender, sometimes a two-bank club deal, with a lower level of commitment. In practice, this will often depend on the internal procedures of the credit committee of the lender or the lenders and the attractiveness of both the borrower and the acquisition in question.Conditions precedent for funding
What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?
The conditions precedent usually mirror those found in cross-border transactions in general. They will usually include the constitutional documents in the form of the articles of association, a transcript from the Danish Business Authority and the shareholder register, together with an officer’s certificate and the more transaction-specific conditions precedent, such as the group structure chart, the cash flow diagram, corporate resolutions, legal opinions, etc. Denmark benefits from a publicly available companies register that provides a highly transparent and updated source of corporate documentation. The prudent legal practitioner will usually also perform a bankruptcy search in the state gazette and at the local court, although this is normally merely kept on file and not included in the conditions precedent.Flex provisions
Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?
Flex provisions in commitment letters are not widely used in the domestic Danish market but market flex provisions are entirely appropriate for large-scale cross-border acquisitions financings. The extent will depend on the ticket size and remains a matter for negotiations on a case-by-case basis depending on the syndication needs. For purely domestic bilateral acquisition finance facilities or club deals, market flex would not be considered market standard.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.
Securities demands are not generally a key feature of Danish acquisition financings. This feature is more likely to arise in transactions involving alternative debt providers in connection with bridge finance loans. There is no general market standard, and it remains a commercially negotiated feature. It should however be noted, that more sophisticated US West Coast structures are increasingly being adopted in the Danish market, which leads to more variation in the market solutions depending on the industry sector, the investment cycle and the sophistication of the investors.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 the acquisition agreement will usually be the same as for any other cross-border acquisition agreement in the international markets. There are no significant local variations. However, purely domestic finance documents tend to be shorter than standard Loan Market Association documentation and there is no agreed market standard. To the extent that the lenders are drafting the finance documents in-house, each lender tends to use a different precedent and adapt it to the transaction at hand.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 publicly filed for private acquisitions. For public acquisitions the offer and the description of the financing is filed with the Danish FSA at the time the offer is made to the public. However, the more detailed finance documentation is not made publicly available.
Law stated dateCorrect on:
Please state the date on which the law stated here is accurate.
25 January 2021