Table of Contents

Drop-Dead Fee: What It Is, How It Works, Example

By

澳洲幸运5官方开奖结果体彩网:Daniel Liberto

Updated June 27, 2023

Reviewed by

Andy Smith

Fact checked by

Diane Costagliola

Definition

A drop-dead fee is a penalty paid by a borrower to a lender when a transaction, such as an acquisition, fails to complete despite securing funding.

What Is a Drop-Dead Fee?

A borrower may pay a drop-dead fee to a lender when a transaction, usually an 澳洲幸运5官方开奖结果体彩网:acquisition, fails to complete. A penalty clause is included in the terms of the loan or contract. A drop-⛄dead fee is of B🦩ritish origin and is mainly used in the United Kingdom.

Key Takeaways

A drop-dead fee may be applied to a borrower if funding has been obtained, but the acquisition fails to complete.
A drop-dead fee penalty is paid to a lender and often negotiated into the terms of a loan.
The term is of British origin and is mainly used in contracts in the United Kingdom.

Applying a Drop-Dead Fee

Drop-dead fees are evident in business acquisitions. Sometimes a prospective acquirer must obtain funding through a loan. If the purchase of the 澳洲幸运5官方开奖结果体彩网:target company fails, the borrowing company must return the money and may pay a drop-dead fee penalty to compensate the lender for lost interest on the loan.

Important

A drop-dead fee is applicable only if it is negotiated into the terms of the l𝕴oan no longer 💝needed.

Examples of Drop-Dead Fees

In 1992, a group of banks underwrote a failed $750 million 澳洲幸运5官方开奖结果体彩网:refinancing for Dr. Pepper and Seven-Up companies. Six banks were rewarded with a drop-dead fee of about $300,000 each, while another 13 banks with commitments of about $50 million each received nothing because they failed to include the fee when negotiating the deal's terms.

In 2001, the government of India introduced a law that entitled 澳洲幸运5官方开奖结果体彩网:investment banks (IB) involved in government 澳洲幸运5官方开奖结果体彩网:divestment deals, or selling shares of Indian publicly-owned enterprises, to a drop-dead fee. This proposal entitled investment bankers to 3% of 澳洲幸运5官方开奖结果体彩网:gross sale proceeds from 澳洲幸运5官方开奖结果体彩网:asset sales after consultation with investment banks such as Goldman Sachs, Merrill Lynch, and Jardine Fleming. 𒁃The fees varied depending on the method of divestment💝, total value, the amount of work required to complete the transaction, the degree of difficulty, and chances of success.

What Is a Drop-Dead Fee vs. a Drop-Dead Date?

A 澳洲幸运5官方开奖结果体彩网:drop-dead date is a provision in a contract that sets out a finite deadlin🤡e that, if not met, will automatically trigger adverse consequences. Failing to meet the deadline made explicit in the terms of a written agreement could result 🔥in the deal being terminated or incur a financial penalty.

What Does a Drop-Dead Fee Contract Clause Include?

The clause will include the deadline for the disbursement of funds that will trigger the fee, the percentage fee applicable to the drop dead fee, and the allowable time to pay the penalty.

What Is a Drop-Dead Fee Called in the United States?

A reverse termination fee or a reverse 澳洲幸运5官方开奖结果体彩网:breakup fee in the U.S. is similar to a drop-dead fee and paid by the buyer if an acquisition agreement cannot complete due to a lac🃏k of financing.

The Bottom Line

A drop-dead fee may be paid to a lender when a transaction, usually an acquisition, fails to complete. If a loan is secured, but the deal falls through, the borrower must return the borrowed money🐬 and may pay a drop-dead fee penalty. The term is mainly used in contracts in th𝓰e United Kingdom.

Article Sources

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