Fee letters for bank loans to companies contain a number of common characteristics. In connection with the banks’ efforts at arranging and syndicating the loan facility, they expect a number of customary fees to be paid. The lenders and agent banks will require a number of fees to be paid at the time of closing the bank loan financing as well as additional fees over time.

For a bank loan facility for senior debt, such as a first lien loan facility or a term loan facility, there is usually an underwriting fee, administrative agent’s fee, and ticking fee. The company is required to pay the underwriting fee on the closing date. The underwriting fee is split among the banks in proportion to their relative commitment amounts. An administrative agent fee is paid to the bank that is appointed to serve as administrative agent, which is often the lead bank. The administrative agent fee is also due on the closing date of the loan facility and then payable on a yearly basis thereafter.

A ticking fee is often also covered by the fee letter. The ticking fee is intended to compensate the banks for their risk during the period of time between signing the commitment letter to closing the loan facility. While the banks could be allocating the funds towards other investments during this waiting period, they are instead keeping the funds available. The ticking fee is structured to increase as more time passes. It is possible that the deal does not close, and there is more of an opportunity cost for the lenders to keep waiting for a longer time period.

The fee letter for a bridge loan facility will typically contain additional fees in order to compensate the lenders for the increased risk profile. Bridge loans are short-term financing arrangements that are entered into by companies in connection with an acquisition, before more permanent sources of financing become available. Fees for bridge loans can be expensive. For example, the company will be required to pay a bridge rollover fee if the bridge loan facility remains outstanding for at least one year.

If the deal does not close, a break-up fee may have to be paid to the agent banks. There may also be an alternate transaction fee if the company completes a transaction for alternate financing within a certain time period after signing the fee letter.

One provision in the fee letter that is highly negotiated is the flex language. The flex language permits the banks the ability to change the terms of the financing following the signing if necessary to syndicate the loans to other banks. For example, the banks could change the pricing, prepayment premiums, or yields to make the syndicated loan facility more appealing to other banks.

In bridge loan fee letters, the securities demand provision is highly negotiated. This provision enables the lenders to demand that the company issue long-term debt securities in the future for the purpose of eventually refinancing the bridge loans. This provision may be drafted so that only one lender has a securities demand right, or it may be structured so that a majority of lenders must exercise the demand right together.