Managing Regulatory Delay Interest and Price Adjustments under CFIUS Mitigations
Regulatory delay interest and purchase price adjustments under CFIUS mitigations preserve transaction yield by aligning interest accrual with clearance windows.
Regulatory Delay Interest
Meaning
Compensation paid by one party to another offsets the carrying costs and the loss of use of capital experienced during prolonged government reviews. This regulatory delay interest typically applies when a merger cannot close on the scheduled date due to antitrust or national security clearances. It is a common feature in large-scale infrastructure deals where the timeline for regulatory sign off is uncertain.
Trigger Condition
Payment obligations begin after a specified grace period or a long-stop date defined in the purchase agreement. When the parties encounter a bottleneck with a government agency, the regulatory delay interest starts to accrue on the outstanding purchase price. This provision encourages the buyer to cooperate fully with regulators and provide all necessary information in a timely manner.
Economic Allocation
Calculation of the amount usually involves applying a pre-agreed interest rate to the total deal value for every day the closing is postponed. Including regulatory delay interest in the contract shifts the financial burden of a slow approval process from the seller to the buyer. This ensures that the seller is not unfairly penalized for delays that are outside their direct control.
Negotiated Cap
Parties often agree on a maximum amount of interest to be paid to prevent the cost of the delay from becoming prohibitive. The presence of regulatory delay interest can influence the strategy for filing applications and managing interactions with government officials. It acts as a financial reality check that keeps the transaction moving toward a final resolution.
Most agreements specify that the interest stops accruing if the deal is terminated by either party under the provisions of the contract.