Seven Considerations For Borrowers Completing An Acquisition

If your company is considering an acquisition, and it also happens to be a borrower under a credit facility, it is important that you review the credit documentation to ensure that the acquisition will not result in a breach of any of the provisions. Here are seven key questions to ask when identifying possible issues under the credit documentation when undertaking an acquisition:

1. Is the acquisition permitted under the credit agreement? Most credit agreements contain negative covenants that may prohibit acquisitions without consent of the lenders, or may allow only certain types of permitted acquisitions.
2. Does the credit agreement permit the funds thereunder to be used to complete the acquisition? It is typical for a credit agreement to restrict the purposes for which funds drawn thereunder may be used. Such permitted uses may be broad (such as general corporate purposes) or may be quite limited. The funding of an acquisition may or may not be permitted under the