URI: Sketching a Settlement and the Possible Bank Hold-up

So, I've been thinking this morning about the parameters a settlement of the URI dispute would take and the potential pitfalls and problems.  First, assuming the settlement is a reduction of consideration paid and not a lump sum payment or other Harman-like settlement, this raises two issues:

• Contracts.  If the consideration is for a lower amount, then URI must resolicit its stockholders to approve the transaction.  This means delay and more time for Cerberus and the banks to firm up their outside financing.  However, in this situation URI's lawyers are going to be looking to tighten up their contracts as much as possible to eliminate any uncertainty in the deal (Ehrenberg v. Swedenburg take two -- you have to love it).  But if there is such a renegotiation, expect the merger agreement to have a clear specific performance clause, a MAC clause limited only to events after the date hereof and possibly tighter, and a firm third party beneficiary clause against Cerberus.  Also, expect the parties to tighten up the financing documents and guarantee by limiting them to the same jurisdiction, providing third party beneficiary clauses and plugging any outs to make it clear specific performance is in fact available here.  Ultimately, though, these documents have holes and there is now no trust between the lawyers, let alone the parties.  In addition, given the multiple actors, you can only get so far under this structure towards certainty.  If I were URI I would attempt to cover this gap by converting the merger to a tender offer to make closing quicker and force Cerberus to fund with equity placed in a trust similar to what happened in the Accredited Home Lenders/Lone Star dispute.  Cerberus has sufficient funds to do so. 
• The Banks.  If Cerberus is unwilling to fund with equity it likely must obtain the permission of the financing banks to reduce the consideration it is paying and revise the financing documents.  In the Home Depot Supply renegotiation the banks were able to use this leverage to threaten to pull their financing entirely and walk.  There, they ultimately were able to force an even lower price than the one negotiated among Home Depot and the private equity firms.  The banks thus have significant leverage over this deal in a renegotiation.  Expect them to use it if they can.

All of this makes for a  very complicated arrangement involving actors negotiating under heavy time pressure without much trust.  Given the difficulties, the Harman option is an appealing one -- in such a scenario Cerberus agrees to invest a significant amount in URI in settlement of all the claims.  But I am going to go out on a limb and bet against it.  In Harman, there was a good MAC claim and a claim that Harman had breached their cap ex covenants.  Harman was attempting to get the best they could out of a weak position and negotiated fairly badly on that hand.  Here, URI has a much better case.  So, this is an educated guess, but I think if there is a settlement it will not be on a Harman like basis given the better negotiating position of URI.  Still, this leaves a very complicated arrangement to work out in a day. Yet more all-nighters for the lawyers and more chances of ambiguous drafting.