Provision in Investor Term Sheet re Borrower Responsibility for Fees

searcher profile

April 24, 2023

by a searcher from Columbia University in Miami, FL, USA

Looking at a provision in a combined debt/equity term sheet from an investor for an acquisition we are raising for that says: "Borrower shall be responsible for filing fees, closing costs, and Lender’s reasonable attorney fees in connection with its due diligence and documentation."

Haven't seen this before. Is this the norm? At first glance feels a little odd that the borrower would pay attorney fees for an investor.

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commentor profile
Reply by an intermediary
from The University of Chicago in Radnor, PA 19087, USA
First, the key phrase in your message is "Borrow shall be responsible for ... Lender's ...". It is very typical in deals with lenders, whether they are banks or institutional debt funds, that the borrower pay all reasonable fees of the lender. While the lender is providing capital, they are not really investing in your deal.

Second, it is also typical for institutional equity investors to have their reasonable legal fees for a transaction paid by the "company". As Brian mentioned, the funds provided by the investor will be used to pay the fees. The equity investor wants to maximize their ownership position in the company. Having the legal fees paid by the company using the funds provided by the investor results in a larger ownership position compared with the alternative of the investor paying the legal fees directly.
commentor profile
Reply by a professional
from Dartmouth College in Los Angeles, CA, USA
Yes unfortunately it is normal, but since the funds are also coming from them to the company to pay it, you can justify it in that sense. You should try and cap it at somewhere between $25k and $50k depending on the size of the deal.
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