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.
Ticking Fee Clause
Meaning
Provisions in a commitment letter or merger agreement require a buyer to pay an escalating fee to the seller or a lender as the time to closing increases. This ticking fee clause compensates the counterparty for the risk and the cost of keeping the deal alive during a long interim period. It usually starts to accrue a few months after the signing of the initial agreement and increases in increments until the transaction is completed.
Incentive Alignment
Buyers are encouraged to move quickly through the regulatory and financing hurdles to avoid the growing financial burden of the fee. The presence of a ticking fee clause shifts some of the market risk to the purchaser, as they must pay for the passage of time regardless of whether the delay is their fault. Sellers use this term to ensure that their exit is not stalled indefinitely by a buyer who is dragging their feet.
Financing Commitment
Banks often include these charges in their loan offers to protect themselves against changes in the interest rate environment. Under a ticking fee clause in a debt commitment, the borrower pays a small percentage of the total loan amount for every day the facility remains undrawn. This payment reserves the capital and ensures that the lender is ready to fund the transaction at a moment’s notice.
Contractual Cap
Total exposure for the buyer is sometimes limited by a maximum fee amount or a hard cut-off date after which the deal can be cancelled. Negotiation of the ticking fee clause involves balancing the need for speed with the reality of the regulatory landscape. The final terms reflect the relative negotiating power of the parties and the overall volatility of the industry in which they operate.
Accrued fees are typically paid as a lump sum at the point of closing or upon the termination of the transaction.