The following Banking & Finance guidance note Produced in partnership with Neil Grant provides comprehensive and up to date legal information covering:
This Practice Note:
explains why lenders include certain undertakings in leveraged loan agreements
provides an overview of each undertaking’s structure and common permitted exceptions; and
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:
financial indebtedness; and
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:
the target’s particular requirements and existing finance documents
the acquiring sponsor’s business plan and precedent loan documents; and
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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