Postponement of Seller Notes in Canada

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by a professional from University of Alberta
in Calgary, AB, Canada

2yrs ago

Postponement of Seller Notes in Canada

“Postponement” of a Seller Note (VTB) is the Canadian version of a “standby” Seller Note in the United States.

The bank lending funds to the Buyer to finance the acquisition requires the Sellers to postpone receiving repayment on the Seller Note until the bank’s loan is fully repaid by the Buyer.

The banks in Canada are now frequently requiring interest-only payments on the Seller Note.

Repayment of principal on the Seller Note is postponed until the bank is fully repaid.

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reply by a searcher 2yrs ago
from Queen's University in Calgary, AB, Canada

There's a bit of a nuance here. I'm in the process of working with banks on a deal where my seller note is 'fully postponed' but will be paid as a year 4 bullet. Amortization and term length on my proposed Sr Debt are longer than 4 years, so there will still be Sr Debt on the business at the time of repayment. Discussing with the banks, it sounds like this is fine so long as

(1) they've been getting paid,
(2) the bullet payment is deep enough in the amortization period that the bank will be meaningfully paid down
(3) there is subordination and postponement, so if 1&2 isn't true they can prevent you from repaying the seller note and
(4) the interest rate on the vendor note is less than what the bank is charging (so they can pretend it's equity)

Sellers aren't going to accept an 8-year vendor note - the banks are well aware of that.

reply by a searcher 2yrs ago
from Queen's University in Calgary, AB, Canada

Not really, no. They just expressed that it was far enough out for them to get comfortable with. I've had multiple lenders express comfort with this (a mix of big banks and some smaller lenders). Actually, I haven't had any lenders express discomfort with it. Feel free to reach out privately if you want more specifics.