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When are commitment letters used?

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In the US loan market, a commitment letter issued by the appointed lead arranger may be used instead of the term sheet and mandate letter to set forth the mandated lead arranger and lay out the terms of the facilities, along with annexes, schedules and/or exhibits.  The borrower appoints and grants the mandate to the lead arranger by signing and returning the commitment letter to the mandate lead arranger.

The US market does not use a standardized form commitment letter, where it is also called a “mandate letter”.  In the European and Asian-Pacific loan markets, a template commitment letter is typically used together with the recommended form of mandate letter and term sheet published by the Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) for their respective markets.

There are two forms of LMA Commitment Letter, one for before agreement of legal documentation by lender/investor and one for after legal documentation agreed by lender/investor.

In US acquisition finance, the initial documentation for a bridge facility commitment will include a commitment letter together with a term sheet setting forth the terms and conditions of the bridge loan.  While it does not include many of the detailed provisions in the facility agreement, the commitment letter covers all key economic terms of the financing and are highly negotiated.

A "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 bridge loans or certain funds have not funded.

Commitment ⇒│Drop-Dead Date

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