Bass, Berry & Sims attorney Katie Smalley authored an article for CFO.com examining the debt facility aspects a CFO should consider when evaluating a potential acquisition. Most debt facilities impacted by acquisitions typically involve four key components: acquisition restrictions, limits incurring additional debt, requirements for incorporating the target’s financials on a pro forma basis, and obligations to pledge additional collateral or add guarantors through joinders.
As acquisition deals tend to move quickly, CFOs and legal advisors must assess how the transaction can be executed within the constraints of existing loan covenants and certification requirements. Identifying these pressure points early on provides clarity on lender expectations and helps mitigate risk during negotiations.
“Carefully considering how a potential acquisition will fit within your company’s existing debt facilities early in the acquisition process will allow you to proactively identify and address potential issues,” explained Katie. “Engaging legal counsel and maintaining open communication with your lenders can streamline the negotiation process and help facilitate a successful close.”
The full article, “Growth Mode: Key Loan Agreement Provisions During an Acquisition,” was published by CFO.com on July 16 and is available online.
This article is the second in a three-part series published by CFO.com providing CFOs with essential legal updates and an examination into key legal issues that impact the financial health of a business, outlining practical strategies to navigate and manage risks in a CFO’s daily responsibilities. The other articles in the series include:
- “5 Key LOI and Purchase Agreement Strategies CFOs Must Master,” authored by Bass, Berry & Sims attorney Tatjana Paterno (published June 17)
- “7 Legal Considerations for Mitigating Risk in AI Implementation,” authored by Bass, Berry & Sims attorney Emily Burrows (published August 12)