![]() ![]() The intent among all parties at the commitment stage is therefore not to fund a bridge loan, but to draw down the bridge loan only to remove funding risk from the M&A transaction. The borrower would prefer to avoid certain expensive fees and pricing the permanent financing at the interest rate cap (discussed below) and lenders would prefer to be engaged as the initial purchasers on the permanent financing (usually high yield bond) rather than assume such a large balance sheet liability. However, bridge loans carry significant risk. Traditional bridge loans are temporary loans with an initial maturity of one year or less, put in place to bridge a potential gap between the announcement of an acquisition until a company can secure permanent financing. Certainty of funds is required both for regulatory reasons for financing the acquisition of listed companies in Europe (i.e., under the UK takeover code cash consideration should be available to proceed with a bid), as well as practical considerations, such as providing assurance that both private equity buyers and corporate buyers can raise the necessary funds to support their bids during an auction process. In "The Basics of Bridge Loans", the White & Case team explains the key terms of bridge loans and discusses some challenges faced in the current market.īridge loans serve as an essential way that a potential acquirer demonstrates its ability to fund an acquisition. ![]() Bridge loans are a key way to finance large acquisitions, but their terms are very specialized. ![]()
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