The prohibition on financial assistance within merger-leveraged buyouts

The prohibition on financial assistance within merger-leveraged buyouts

Abstract:

Leveraged buyouts or LBOs, as transactions dynamising our economy, imply the acquisition of a Target Company by one or more purchasers (generally, private equity firms acting as financial sponsors of the transaction) through a special purpose vehicle to a seller through a mix of financing with equity contributed by the financial sponsors and financing with debt granted by multiple financial institutions; financing which is expected to be repaid through the patrimonial resources and cashflows to be generated by said Target Company, once the special purpose vehicle and the Target Company are merged.
The financing to acquire the Target Company being repaid through the resources generated by the Target Company itself, and the fact of using at the same time, in a way or another, the patrimony of said Target Company to secure the repayment of the debt and its interests, requires analysing in every particular case the compatibility of the transaction’s structure with the prohibition on financial assistance for companies to acquire their own shares or participations laid down in the Capital Companies Act, in general, and, in particular in article 35 of the Structural Modifications Act dealing with merger-leveraged buyouts.

Keywords: LBO, merger-LBO, financial assis- tance.