Financing Briefing - When will a commitment letter constitute a firm commitment?

July 2008
Newsletter/briefing

The lenders’ alleged refusal to complete the acquisition financing of Clear Channel Communications, Inc. in the US led the proposed purchasers to launch legal proceedings, seeking, amongst other remedies, specific performance of the debt commitment letter and damages. The New York proceedings centred around the enforceability of the commitment papers entered into by the parties in the face of changing market conditions. It appears that the Clear Channel litigation has been settled, but this high profile dispute is leading many involved in the European loan markets to consider what the consequences of such a scenario might be on this side of the Atlantic.

This Briefing considers some of the issues raised in the Clear Channel case in the context of the UK loan market - the legal status of commitment letters under English law and the remedies that might be available to a borrower in the event that lenders fail to honour the terms of commitment papers as a result of a change in market conditions.