Bridge And Acquisition Financing

---
name: bridge-and-acquisition-financing
description: Structures the committed acquisition financing behind a bid, sizing the bridge and its takeout and pricing the fee drag, when you need certainty of funds to sign a deal.
---

# Bridge And Acquisition Financing Agent

## When to use
Use this when a bidder must show certain funds at signing but cannot raise the permanent capital until after announcement. Typical triggers: a public bid whose offer document must state the cash is committed, an auction where the seller scores certainty as heavily as price, or a board asking what the financing costs if the bond market shuts. Reach for it when the question is whether the buyer can credibly sign, not what the target is worth.

## What it does
It produces a financing structure: sources and uses, the committed facilities sized by tranche, the bridge with its securities demand and flex provisions, the takeout into permanent capital, and a cost bridge for what the bridge costs if it funds and stays outstanding.

## Method
1. Size the funding need. Start from uses, not from what the banks will lend.
   - Uses are purchase equity value, target debt refinanced on change of control, and fees. Sources are cash, committed debt, and any equity or disposal proceeds; the two must tie.

2. Split permanent from bridged capital. Bridge only what cannot be raised at signing.
   - Term loans, revolvers, and cash fund at close and need no bridge. The bond tranche, the equity issue, and unsigned disposals do, because none can execute before the deal is public.

3. Size the bridge to the worst realistic case, not to the plan.
   - Bridge every source that is not documented and unconditional at signing, including disposals under exclusivity but unsigned.
   - A bridge sized only to the bond tranche leaves the buyer exposed if a divestiture slips; committing the larger number and cancelling it down is cheap insurance.

4. Set the conditionality. Certain funds is the whole point.
   - Limited-conditionality "SunGard" terms: the only conditions to funding are those in the merger agreement, with a short list of specified representations, no market-out, and no ratings condition.
   - Match the availability period to the outside date including extensions, or the buyer is bound with expired financing.

5. Document the securities demand. It is the banks' exit, not the issuer's.
   - After a marketing period of consecutive business days the arrangers can compel the issuer to issue notes at any rate up to a Total Cap; the bridge then repays automatically.
   - The Total Cap is the number to negotiate: it is the worst coupon the buyer can be forced to accept.

6. Negotiate the flex. Assume it gets used.
   - Pricing flex widens the spread and cuts the issue price, structural flex moves size between tranches, covenant flex adds a maintenance test; reverse flex applies only on an oversubscribed book.
   - Take the fully flexed case to committee as the base case; the headline terms alone are a number nobody committed to.

7. Build the takeout with dates. Say what refinances the bridge and when.
   - Sequence the notes issue, the equity raise, and the disposal, each with a target window, and state what happens if a leg slips.

8. Price the fee drag. Quantify staying outstanding.
   - Ticking fees accrue from signing whether or not the bridge funds, a funding fee is paid on drawdown, duration fees are charged at intervals, and the spread ticks up on the same schedule to the cap.
   - Express the drag against the takeout coupon and against first-year synergies, so the board sees delay in the currency of the deal case.

## Inputs
- Purchase price, target net debt, and change-of-control terms on existing debt
- Cash available at close and any equity or disposal proceeds assumed
- Pro forma EBITDA and the leverage the credit can carry
- Indicative terms per tranche: size, tenor, spread, amortization, fees
- Bridge terms: ticking, funding and duration fees, spread ticks, Total Cap
- The outside date, its extension mechanics, and the takeout timing

## Output format
- Sources and uses with the tie shown, split into funded-at-close and bridged
- The committed structure by tranche with pro forma leverage in turns
- Bridge terms: conditionality, marketing period, securities demand, Total Cap
- The flex provisions, with a fully flexed case alongside the base case
- A takeout sequence with dates and the consequence if each leg slips
- A cost bridge at successive intervals outstanding, against the takeout coupon
- Present all schedules in prose, never as markdown tables

## Example
For Halyard Industrial (fictional, illustrative) buying Pemberton Controls at an enterprise value of 2,400, or 12.0x LTM EBITDA of 200: uses of 2,400 plus 60 of fees, so 2,460, are funded by 660 of cash, a 900 term loan A, and a 900 senior unsecured bridge, which ties. Halyard's own EBITDA of 400 plus Pemberton's 200 gives 600, and existing debt of 1,000 plus the 1,800 of new facilities gives 2,800, so pro forma leverage is 4.7x. The bridge is taken out by 600 of senior notes and 300 from a signed disposal. Fees run 0.50 percent at signing, 1.00 percent on funding, and 0.50 percent at each of 90 and 180 days, with the 9.25 percent coupon ticking 50 basis points every 90 days to an 11.50 percent Total Cap. If the notes price inside 30 days the cost is the 4.5 ticking fee alone. If the bridge funds and sits nine months, interest averages 9.75 percent, so 65.8, plus 18.0 of funding and duration fees, against the 57.4 that 8.50 percent notes would have cost: an incremental 26.4, or two-thirds of the 40 of run-rate synergies underwriting the deal.