Glossary
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Loan Assumption
« Back to Glossary IndexThe process by which a buyer or acquiring company takes over and assumes the existing loans and liabilities of the seller or the target company as part of the overall deal. This can be a significant aspect of the M&A transaction, especially when the target company has outstanding loans or debt obligations. When a company is acquired, the acquiring company may agree to assume responsibility for the target company’s existing loans, including terms and conditions. This can be done for various reasons, such as maintaining continuity in the target company’s operations, ensuring the stability of its financial structure, or simply as a part of the negotiated terms between the buyer and seller. The loan assumption process typically involves a thorough examination of the existing debt agreements, including the terms, interest rates, covenants, and other relevant conditions. The acquiring company may need to obtain approval from the lenders or creditors for the assumption of these loans. Additionally, the terms of the assumption may be subject to negotiation as part of the broader M&A deal. By assuming the target company’s loans, the acquiring company essentially steps into the shoes of the target company regarding its debt obligations. This can have implications for the financial health and risk profile of the acquiring company, so careful due diligence and negotiation are crucial in the loan assumption process within M&A transactions.
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