As a potential corporate client, it's essential to understand the terms and conditions of the engagement letter with a debt advisory firm. One of the clauses that may appear in the engagement letter is the "tail-gunner clause." The tail-gunner clause is a common clause in a debt advisory firm engagement letter that protects the firm in the event that the client secures financing or completes a transaction within a specified time frame after the engagement ends.
The tail-gunner clause is an indemnification clause that typically provides that if the client enters into a financing or transaction within a certain period after the engagement ends, the client must pay the debt advisory firm a fee based on the transaction or financing size. The clause is designed to protect the debt advisory firm and ensure that it's compensated for the work it has done in identifying and structuring the financing or transaction, even if the client ultimately executes it without the firm's assistance.
The tail-gunner clause is particularly relevant in the debt advisory industry, where the lead time between initial discussions and the finalization of a financing or transaction can be lengthy. Without a tail-gunner clause, a debt advisory firm may spend significant time and resources working with a client only to have the client execute a financing or transaction shortly after the engagement ends, without compensating the firm.
From a client perspective, it's important to understand the tail-gunner clause and negotiate its terms carefully. Clients should ensure that the clause only applies to transactions or financing that are directly related to the services provided by the debt advisory firm during the engagement period. Additionally, clients should negotiate the length of the tail period and the fee structure to ensure that they are reasonable and appropriate for the services provided.
In conclusion, the tail-gunner clause is an essential clause in a debt advisory firm engagement letter that protects the firm's interests and ensures that it's compensated for the work it has done, even if the client ultimately executes the financing or transaction without the firm's assistance. Clients should understand the clause and negotiate its terms carefully to ensure that they are fair and reasonable.
Enquiries
For further information, please contact info@langdoncap.com
About the author
Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.
About Langdon Capital
Langdon Capital provides in-house transaction services to C-suites and Boards of publicly-listed, PE-backed and VC-backed businesses during the negotiation, execution and due diligence of debt and equity capital raising transactions and senior interim resourcing solutions across finance, treasury, strategy and corporate development | contact info@langdoncap.com | visit www.langdoncap.com
#CapitalRaising #CorporateFinance #CorporateDebt #DebtFinancing #DebtFinance #Financing #Capital #Debt #Equity
This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.
Comments