October 28, 2021 - by Bridget Marsh. On October 26th, the LSTA hosted a webinar, “Cyber is Coming to a Loan Near You!”, presented by Latham & Watkin’s partners, Robert Blamires, Antony Kim, and Jane Summers. To understand the current cyber state of play of a company requires an examination of what actually happens inside a company if / when a hacker breaks in and is looking to gain access to privileged and important data such as trade data, nonpublic filings relating to new products and offerings, and other critical, private company-related information. Knowing what and how to diligence a company is, therefore, critical because the cost of a data breach can be crippling. The cost of even a small breach involving up to 100,000 records is on average $9 million in the US but for a mega-breach involving millions of records the average cost is $400 million. The regulators are fully aware of the costs and risks and have increased the number of investigations, enforcements, law suits, guidance, etc. It’s not simply the headaches and costs involved in a data breach; the ability to run a business can be entirely shut down, leaving it unable even to service its debt. No industry is isolated from the risk of a cyber attack – the communications, aerospace, and technology sectors all are at risk.
The proceeds of many loans in our market are used to fund acquisitions, and typically the representations in the purchase agreement can be relied on by the lenders, and those representations must generally be true and correct for the funding to occur. Recently, sellers are giving more granular representations in the purchase agreement that relate to the target company, its data, and cyber security practices and policies. The question, therefore, arises whether the typical credit agreement’s compliance with laws representation is sufficient. Perhaps drafters of credit agreements need to consider whether to include more detailed representations that will provide greater protection in this area, look at the representations included in the purchase agreement, and develop corollary types of representations and warranties. The LSTA plans to float this idea in coming weeks with the Primary Market Committee. Click here for the slides and the replay.