Definition
A financing commitment letter is a letter from one or more lenders (or lead arrangers) committing to provide debt financing to fund a tender offer. Required as a Schedule TO exhibit when the bidder is using debt financing.
Components
- Commitment letter — lender’s binding commitment to provide financing on stated terms
- Term sheet — economic terms (rate, tenor, security)
- Engagement letter — mandate to syndicate the financing
- Fee letter — commitment, ticking, and other fees (often filed in redacted form)
Why it matters
The commitment letter is the bidder’s evidence that financing is locked in. Strong commitment letters with limited “market MAC” exit provisions reduce financing-failure risk and support a tighter (or absent) financing condition.
Common conditions in commitments
- No material adverse change at the borrower or in the financial markets
- Compliance with SunGard provisions (limited reps from target)
- Receipt of audited financials
- Solvency at closing