easy · Debt Capital Markets
In an 'Underwritten LBO Bridge', the bank provides a short-term loan to ensure an acquisition can close, intending to replace it with bonds later. If the bond market 'shuts down', the bank:
- Can force the company to return the acquired assets and cancel the merger.
- Is 'stuck' with the bridge loan on its balance sheet (a 'hung bridge') and must hold it long-term.
- Simply gives the loan to a competitor bank to manage.
- Is allowed to double the interest rate every day until the bonds are sold.
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