Before undertaking a change of control, companies that frequently procure surety bonds should consider the effect that the transaction might have on their surety bond facilities. In this five minute blog post Henry Robbins highlights the information that will be required post transaction.
It might seem negligent to consolidate all the aforementioned transactions into a single blog post, and such an assumption would be understandable. However, although each transaction is distinct and possesses its own set of unique features, the role of the underwriter and the core principles of underwriting do not change. In every case, the surety provider's paramount objective is consistent: to thoroughly comprehend the risk being assumed and the prospective future risk profile of the business.
Each of the above transactions changes the risk profile of a business to some degree and therefore each creates a trigger event for a full underwriting assessment of the business, regardless of the financial strength of the business pre-transaction. In some cases, it will strengthen the risk position of a business from an underwriting perspective and in some it will weaken it. By virtue of that, any of the above transactions will impact a company's ability to procure to bonds and the price at which they are able to do so, for better or worse.
The aim of this blog post is simply to outline the initial suite of information that a company should produce to deliver a robust submission to the market and we will highlight some of the key considerations from an underwriting standpoint. We have provided the base level suite of information below and clicking on each will provide a brief explanation of the requirement. In the surety market, the more robust a broker's submission, the greater the likelihood of obtaining favourable Terms in terms of both pricing and the capacity extended.
Surety Underwriters’ Due Diligence Requirements Post-Transaction:
Explanation of the rationale behind the transaction;
Self-explanatory but critical nonetheless. The detail required is simply for the underwriter to understand the motivation behind the transaction from both parties’ perspectives and specifically why Management has opted to pursue the transaction inclusive of the perceived benefits of the transaction
Post-transaction Consolidated Group Balance Sheet;
Details of the Sources and Uses of Funds;
Share Purchase Agreement (“SPA”) / EOT Deed:
Overview of Management Team Pre- and Post-Transaction:
A full overview of the Repayment Terms/Obligations and a copy of the associated formal Agreements:
Financial Forecasts (P&L, Balance Sheet, Cash Flow) to the end of the current financial year and next financial year.
What should you do before considering a business sale via an EOT, MBO, PE or Trade Sale?
Contact Henry Robbins on 07944883053 or via email at henry.robbins@pssurety.co.uk
For a no obligation discussion.
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