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The Default Deferred Consideration Insurance shall offer an irrevocable undertaking to pay the Vendor following Default by the Purchaser to pay the due Deferred Consideration payment.
| Insured Vendor |
- A group of individuals the parent company selling a subsidiary to new and/or existing management team
- The retiring proprietary owner manager(s)
- The private equity house selling to management rather than a secondary buy out
- A group of existing shareholders following a share buy back or a public to private
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| Coverage |
The claims trigger for the Default policy is simply an agreed period from due date. The insurers credit the Vendor’s bank account for the due deferred sum following the Purchasers defaulting on the due sum. Insolvency does not need to occur. Claims are paid within 7 or 90 days from due date depending on the insurer we use. |
| Insured Deferred Period |
6 months – 5 years |
| Types of Deferred Debt |
The methods of documenting and contracting between the Purchaser and Vendor for deferred consideration could be where the vendor insures:
- A loan note or other formal and contracted deferred debt agreement
- Redeemable preference shares (considered an insurable interest given the contracted due date of a contracted indebtedness)
- Earn out
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| Location |
All of the European Union, Australasia |
| Transaction Types | Trade Acquisition
Buy In Management Buy Out
Management Buy Out
Management Buy In
Share Buy Back
Public to Private
Secondary Buy Out
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- Trade
- BIMBO
- MBO
- MBI
- SBB
- P2P
- SBO |
| Deferred Repayment Repayment Profiles |
Monthly, Quarterly, Six Monthly or Annually; |
| Cost |
The insurance premium payable is calculated using a per annum percentage on the limit of liability outstanding during the policy period and is usually in the region of 3% to 6% per annum. The premium will reflect the nature of the business, the assets and value of the business and the experience of the management team. The premium for the entire insured period is paid on day one. This is to ensure that the Vendor has a non-cancelable instrument for the duration of the deferred period. The premium can sometimes be financed over a 12 month period. |
| Levels of Insured Deferreds |
£500k – £25m |
| Vendor Interest |
Loan Note interest can also be secured |
| Security |
Vendors or the Underwriters will hold a second ranking debenture security position and will enter into an Inter-Creditor Agreement with the lending bank. |
| Assignment of policy |
The Policy is only assignable to ones trust or estate. |
| Exclusions |
(a) Arising directly or indirectly from dishonest, criminal or malicious acts, material misrepresentation, fraud or concealment of any material fact on the part of the Vendor.
(b) Arising directly or indirectly from any material change, alteration or modification to the Contract except where the Underwriter shall have given express written consent to such change, alteration or modification, which consent shall not be unreasonably withheld or delayed.
(c) Debt forgiveness
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| Non Cancelable |
The Purchaser or Vendor will always pay the entire premium for the entire loan note period at inception, which occurs at completion of the acquisition. This ensures the Vendor has non-cancelable cover for the whole loan note period and beyond. |
Click here for 'The Basics' |
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