Credit Insights: VTBs In Financing Transactions – Key Considerations

Welcome to Credit Insights, a periodic series where members of Torkin Manes' Banking & Financial Services Group examine and discuss technical aspects of lending transactions with a focus on the legal documentation and best practices in transaction execution. In this initial article in our series, we examine VTBs.

The VTB

The standard Canadian mid-market buyout transaction involves both a senior loan with a Canadian bank and the buyer contributing equity to fund the purchase price. However, in recent years, with banks becoming more conservative, and with the rise of independent sponsors and search funds, there has been an increased use of "vendor-take-back" promissory notes ("VTBs") to fund the purchase price where the combination of senior debt and equity is insufficient or suboptimal to fund the entire purchase price.