Financing Conditions

Summary

A financing condition (also known as a "financing out") in an acquisition agreement provides the buyer with a right to terminate the transaction (commonly known as a "walk right") in the event that that the buyer is not able to secure financing to fund the acquisition. Financing conditions are most commonly employed by private equity buyers in leveraged buyouts where a substantial portion of the purchase price is borrowed. This practice note discusses types of financing conditions; their distinction from, and relationship with, financing covenants; the evolution in the market's use of financing conditions; the effects of financing conditions on other aspects of an M&A acquisition agreement; and other drafting considerations.