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Long-term Debt

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In the context of mergers and acquisitions (M&A), “long-term debt” refers to the outstanding obligations that extend beyond a 12-month period that the acquiring company assumes as part of the acquisition. When a company acquires another business, it often takes on the target company’s existing long-term debt along with its assets and liabilities. The assumption of long-term debt is a common aspect of M&A transactions. The acquiring company may agree to take over and honour the target company’s existing debt as part of the overall deal structure. This can be done for various reasons, such as maintaining the target company’s financial stability, ensuring a smooth transition of operations, or as a negotiated element of the acquisition terms. As part of the due diligence process in M&A, the acquiring company will typically review the terms and conditions of the target company’s long-term debt agreements. This includes examining interest rates, maturity dates, covenants, and any other relevant terms. The acquiring company may negotiate with lenders or creditors to obtain their approval for the assumption of these obligations. Assuming long-term debt in the context of M&A has financial implications for the acquiring company, and it is an important aspect of the overall financial analysis and risk assessment conducted during the due diligence phase of the transaction.

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