Negotiating general undertakings in acquisition finance transactions
Produced in partnership with Neil Grant

The following Banking & Finance practice note produced in partnership with Neil Grant provides comprehensive and up to date legal information covering:

  • Negotiating general undertakings in acquisition finance transactions
  • Introduction
  • Acquisitions
  • Rationale for restriction acquisitions
  • Structure
  • Permitted exceptions
  • Approach under high-yield bond covenants
  • Disposals
  • Rationale for restricting disposals
  • Structure
  • More...

Negotiating general undertakings in acquisition finance transactions


This Practice Note:

  1. explains why lenders include certain undertakings in leveraged loan agreements

  2. provides an overview of each undertaking’s structure and common permitted exceptions; and

  3. briefly summarises how the same issues are addressed under a high-yield bond covenant package

This Practice Note focuses on four undertakings that are particularly heavily negotiated. These are the undertakings that restrict:

  1. acquisitions

  2. disposals

  3. financial indebtedness; and

  4. dividends

It is common to see a large number of exceptions to each of these undertakings, significantly diluting their effect. The exceptions are driven by a combination of:

  1. the target’s particular requirements and existing finance documents

  2. the acquiring sponsor’s business plan and precedent loan documents; and

  3. the convergence of documentation approaches in the European loan, US Term Loan B (TLB) and high-yield bond markets

Since around 2012, there has been a distinct increase in the range of permitted activities under the general undertakings discussed and sponsors have cherry-picked permissions from various sources. The result has been far greater complexity around how permissions are constructed and their interaction with each other. Each sponsor and law firm has its own precedents and preferences for framing both the undertakings and permissions; there is no market standard approach to either.

For introductory information on provisions in an acquisition finance facilities agreement, see Practice Note: Acquisition finance—facilities agreement. For general information on undertakings in loan

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