Typical security and guarantee arrangements in acquisition finance

Acquisition finance transactions often have a broadly similar structure, are relatively high risk and are normally financed on the basis of the current and projected cashflow of the group rather than the value of particular assets. For this reason, lenders will often expect the group to provide a comprehensive security and guarantee package giving priority to:

• • full security and guarantees from material members of the group to reflect the higher risk;
• • share security from holding companies to facilitate ease of enforcement if necessary; and
• • ensuring that the different tranches of debt have the package appropriate to their level of subordination, see Security on deals with different structures.

Security is generally held on behalf of the lenders and other beneficiaries by a security trustee or security agent.

This guidance note covers:

• • the aims when taking security and guarantees on an acquisition finance transaction;
• • the common structure of the security and guarantee package for senior and mezzanine lenders in acquisition finance transactions;
• • issues relating to guarantees such as the guarantor coverage test;
• • security package on transactions with different structures; and
• • issues that arise when negotiating the security and guarantee package.

For more information, see Typical security and guarantee arrangements in acquisition finance.