In accordance with the UK City Code on Takeover and Mergers (the “Takeover Code”), the bidder for a target company in a UK public takeover must prove that it has “certain funds” available to complete the acquisition. Acquisition finance, regardless of the market, has generally adopted inclusion of certain funds provisions.
Certain funds are effectively bridge financing until an acquisition can be completed and the permanent acquisition financing is provided. Certain funds assure both buyers and sellers that the lenders have no “out” beyond the narrow set of conditions in the conditions annex as long as the conditions to closing are met.
A typical example would be an LBO: the acquirer needs to present a debt commitment letter to the board of the target to show that financing is in place for the bid.
Certain funds have also become common for use by private equity funds, hedge funds and similar debt investors to dispel the concern of vendors about contracting with special purpose vehicles that likely have no assets until the financing is provided. It also guarantees loan pricing through to transaction completion.
The mandated lead arrangers in a syndicate for the financing of the acquisition commit to provide the certain funds. A longstop date (“drop dead date”) is the date specified in commitment letters on which the commitments will terminate if a particular condition has not been satisfied or, in acquisition finance transactions, if the certain funds have not funded.
Commitment ⇒│Drop-Dead Date