Before sending the information memorandum and any other confidential information to prospective lenders/investors, the MLA and borrower must receive from them a signed confidentiality and front running letter. In this document they undertake to treat confidentially any information they receive provided to the MLA by the borrower and acknowledge the prohibition on front running during primary syndication. Commitment papers is the collective term for the commitment letter, fee letter and, if applicable, engagement letter, together with the related annexes, schedules and/or exhibits, prepared at the “commitment papers stage”.
In acquisitions and LBOs, commitment letters are shown to the sellers of the shares or assets. The commitment letters contain confidentiality provisions for the protection of both arrangers and borrowers. They provide that the commitment papers and any other advice provided by the arranger may not be disclosed by the borrower without arranger consent and confidential information relating to the borrower or target in an acquisition financing may not be disclosed by the arranger without the consent of the borrower.
A fee letter is the document between the arranger (or agent) and the borrower that sets out the fees is the syndication of a finance facility. The fees are based on the total available commitment and the roles of the finance parties (arrangers, lenders and agents) are usually payable upon the signing. To ensure confidentiality, details of the fees are usually put in a side letter separate to facility agreements.
The commitment letter and fee letter do not include many of the detailed provisions which are set forth in the credit agreement. However, the letters are meant to cover all key economic terms and are thus highly negotiated..
After signing the confidentiality agreement, the prospective syndication participants gain access to the deal information via a secured website. This information includes the information memorandum and the financial and marketing materials (financial statements, cash flow model, operating overview, independent industry reports.