Conditions precedent

Conditions precedent (conditions suspensives) are the documents and events on which the facilities agreement makes signing or the first drawdown depend. Under French law, a condition precedent is the future and uncertain event on which the performance of the obligation depends. In an acquisition financing, the Loan Market Association model divides them into two lists. The signing conditions include the borrowers’ articles of association and corporate resolutions, the acquisition documents, the signed finance documents and the legal opinions. The conditions to first drawdown include the drawdown request, the due diligence reports and the reliance letters that allow lenders to rely on them, the group structure chart, the historical accounts, the budget, evidence of the equity contribution, payment of the fees and the security to be granted at closing. Each subsequent drawdown requires that no event of default is continuing and that the representations remain accurate. For an acquisition financed on a certain funds basis, as many conditions as possible are satisfied at signing, so that the seller has certainty of funding. For you, the negotiation concerns the wording that requires documents “satisfactory to the agent”: you ask that the agent assess these documents reasonably.

A holding company signs a €95m financing to acquire a services company. The list of conditions to first drawdown contains 32 documents, including the financial and legal due diligence reports, evidence of a €70m contribution from the shareholders and the pledges over the target’s shares. The last document arrives two days before closing. The agent confirms that the conditions are satisfied on the day before disbursement.

• The exhaustive list of documents, settled at the term sheet stage.
• The split between signing conditions and drawdown conditions.
• The agent’s assessment standard, subject to a reasonableness requirement.
• Conditions subsequent, to be delivered after closing within a set period.