April 22, 2019 - On April 17th, the LSTA hosted a webinar, Capturing the Benefits of Representations & Warranties Insurance in Acquisition Financing – What Lenders Need to Know (And Do), presented by Ken Chin, David Fisher, and Howard Spilko of Kramer Levin. Representation and warranties insurance provides coverage for financial losses resulting from breaches of representations and warranties made by a target company or the sellers in the purchase agreement. It is designed to protect an insured from unanticipated and unknown losses that may arise subsequent to the closing of an acquisition. This type of insurance is far more important in today’s aggressive sellers’ market, and buyers will typically pay for the policy themselves. It is considered part of the deal cost in today’s market. In 2018 over 35% of private M&A deals in North America with transaction values up to $10 billion used representation and warranties insurance. The presenters highlighted that insurance carriers are typically willing to recognize materiality scrapes for purposes of determining the existence of a breach of a representation and losses related thereto. Such “materiality scrape” is incredibly beneficial for both seller and buyer because it avoids any debate about whether something rises to the level of being material. Representations relating to financial statements, taxes, and contracts are the most frequently alleged to have been breached. Because the UCC excludes insurance from its scope (unless it is proceeds of other collateral), the presenters suggest obtaining a collateral assignment of each policy and record with the insurer. Click here for the presentation and replay.
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