Xerox Provisions In Merger Agreements

Xerox`s provisions are one of many ways in which lenders seek protection in financing acquisitions, but their availability may be limited by the status of sales contract negotiations once a financing commitment is made. The bargaining power of the buyer and seller can also be a deterrent for a lender who engages in the sales contract. In these situations, this does not mean that a lender is unlucky, but simply that alternative safeguards must be used to protect a lender`s interests. Many acquisition financings, particularly in SMEs, include several types of loans with complex inter-credit agreements. These financings include the 1st and 2nd pawn credits, split-collateral, pari passu collateral, subordinate financings, holdco and unitranche. In complex and technical cross-credit contracts, lenders agree on many issues related to their respective credit classes, including priority given to pawn rights, priority to debt, control of corrective measures and certain technical bankruptcy issues. Negotiating these agreements between different categories of creditors can be lengthy and closure times can be in vain. As the average market continues to grow and more transactions have complex inter-creditor agreements, some sponsors also require lenders to use some form of intercreditor agreement. Some sponsors require reverse flex agreements. These provisions require lenders to change the terms of financing under the letters of commitment to be more favourable to the borrower when the syndication of loans is “oversubscribed”, meaning that the demand of potential lenders exceeds the available loans. Similarly, vague references to “usual agreements” and “usual defaults” in a letter of commitment present similar financing risks from the borrower`s perspective, particularly the proposal to include inadequate provisions that could not be met by the borrower. To limit this risk, letters of commitment to financing acquisitions often contain federal and standard packages (which may contain pages with detailed definitions to be used in calculating financial pacts). It is not that divided jurisdictions are never a key issue in merger disputes, DiRisio warned.

Second, borrowers lobbied for “debt default activism” (activist investors who buy debt to impose an existing default instead of buying debt based on a borrower`s credit risk). After a few high-level cases in the United States (particularly in a case where activist investors bought debt from Windstream to impose a default allegedly resulting from a transaction the company had entered into years earlier), borrowers insisted that provisions be included in credit contracts that would frustrate activist lenders.