The Borrower may wish to utilize LT bank loan, which will be used for some specific reasons like Investments into Assets (reconstruction of Building, purchase of a new Fixed Assets, purchase of Shares – Company take over etc.). These types of transactions are more complex in terms of documentation, structuring and execution. For a big-ticket deals, it is more usual to create a Club-deal or even Syndicated facility transaction, that is then concluded based on LMA standardized documentation. In order to properly assess the underlying risk from this transactions and ability of Borrower to repay the loan, it is very critical to work with financial planning and projections for a LT-period. Having said that, it means that financial projection including Worst case scenarios should prove the ability of Borrower to increase production capacity with modernized/ enhanced or newly purchased Production facility, which was the primary purpose of the loan.

In case of Acquisition financing, whereas the Borrower receives external sources to purchase some Company (or part of Business, or Division etc.), this may lead to slightly different situation in the end, because what happens in reality, is that Borrower will merge with Targeted entity and this Acquisition Loan will be de-facto transferred to newly created entity after merger (so called “Debt push down” process). So that in the end, financial profile and credit standing of the Borrower after the merger will be crucial for determining the debt service ability. This is to be assessed based on repayment profile of the loan, whereas principal and interests installments to be taken into account; on top of that there may be additional CAPEX costs needed for regular maintenance or upgrade of Borrower`s assets and equipment. To measure this development, Financial covenant Debt service coverage ratio (DSCR) is for those cases applied.

As a security, the Bank usually prefers to have such transaction fully “ring-fenced” meaning that almost all tangible assets are pledged:

• General Pledge of trade Receivables and stocks
• Mortgage on Real estates owned by Borrower
• Parent company guarantee
• Pledge of Targeted Enterprise/ Company business shares until the merger is completed
• Insurance policy for Real-estates immobilization

Usual documentation type to be signed with Client:

• LT-Investment/Acquisition financing Loan agreement (based on LMA standard or local equivalent)
• Agreement on pledge of trade Receivables
• Mortgage agreement on Real estates owned by Borrower
• Pledge agreement on Targeted Enterprise/ Company business shares (its realization will be most likely as Condition subsequent)
• Insurance policy for Real-estates immobilization agreement

This LT-credit facility is usually supported by additional financial covenants like:

• Solvency ratio (min. 15% depending on the business industry of Borrower), calculated as Tangible Net Worth / Total Assets
• Interest coverage ratio (ICR) to be at least 1.5x which is calculated as the ratio of EBIT/Interest costs
• Debt service coverage ratio (DSCR) to be at least 1.20x which is calculated as the ratio of EBITDA/ total Debt service (Principal + Interest costs)
• Maximum Leverage ratio to be capped at 4.0x which is calculated as the ratio of total Bank Debts/ EBITDA
• EBITDA Margin to be at least 5% which is calculated as the ratio of EBITDA/Sales Revenues
• And others depending on core business activities of Client and structure.