Acquisition financing provided on a certain funds basis is not subject to due diligence because the conditions precedent (CPs) to the initial drawdown ("initial utilisation") cannot be either specified or satisfied and full transaction documentation requiring due diligence is not yet finalized.  Consequently, only the CPs to signing can be satisfied and the senior facilities agreements are executed only by the arrangers, facility agent, security agent and the relevant original obligors.

The time frame for [acquisition financing] may therefore extend over a number of months from inception to final allocation of the debt to a group of lenders.

However, to finalize facility documentation and close the transaction, a high degree of due diligence must be performed by vendors, sponsors and potential lenders.  Their due diligence will likely highlight a variety of risks and issues relating to the target group that lenders will want addressed in the documentation.

After acquisition transaction completion and the facility documentation is finalized, due diligence reports and the base case model, together referred to as the information package, are provided to prospective investors for their due diligence.  The scope of lenders’ ability to rely on the due diligence reports provided by the parent’s advisers is agreed and specified in reliance letters.

Lenders in European leveraged transactions expect to receive as a condition to funding a copy of each due diligence report which has been commissioned by the purchaser (and possibly the vendor).

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