💡 Key Notes on Lenders' Approval and Parent Guarantee for M&A Transactions

1️⃣ Change of Control Provisions in Loan Agreements

Existing loan facility agreements for the projects usually contain change of control (CoC) clauses, which can be triggered by the proposed M&A transaction. This creates a critical need to address these provisions, as failure to obtain prior written consent from lenders could result in:

(i) Termination of financing agreements.
(ii) Acceleration of outstanding loans at the lenders’ discretion.
These potential consequences highlight the importance of lender consent as a condition precedent for the transaction's completion.


2️⃣ Parent Guarantee Requirements

Parent guarantees are a common feature in project financing, especially in fully recourse models. Most projects (e.g., energy or real estate) rely on full recourse guarantees from the ultimate parent company. Lenders usually require new guarantees from the incoming sponsor on no less favorable terms when sponsors are replaced.
However, recent challenges like loan restructurings and short tenors have complicated guarantee requirements. Negotiations with lenders have begun, but approvals may take months as decisions remain subject to lenders' approval.

3️⃣ Equity Mortgage Considerations

Equity investments in certain projects are pledged as security to lenders, adding complexity to M&A transactions. Changes to ownership of mortgaged shares could affect lenders’ security interests.
Lenders typically require prior written consent before equity transfers, failure of which could trigger default provisions under loan agreements, which are similar to the CoC requirements mentioned above.

🔑 Recommendations

• Early lender engagement to secure consents for control provisions, guarantees, and equity mortgage approvals.
• Clearly include lender and mortgagee consents as SPA conditions precedent.
• Negotiate guarantees and streamline approvals with contingency plans for delays.
• Explore alternative solutions like substitute collateral or interim guarantees.

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