Stapled Financing in Poor Credit Markets

Foulds, a clerk for Vice Chancellor Parsons, has a paper on conflicts of interest in stapled financing.  Stapled financing is a practice in which the seller's advisor offers potential acquirors financing to undertake an acquisition.  Of course this is a practice where there are serious potential conflicts of interest because in a competitive setting a seller's advisor has an incentive to favor a buyer who will take the financing over a buyer who won't.   The Delaware Chancery Courts have looked warily at the practice and it's been the subject of some discussion by practitioners.  Hey, I've even got stapled financing on my list of "to do" papers.   

Foulds puts an interesting twist on the stapled financing debate by suggesting that in poor credit markets the presence of stapled financing will make a deal more likely to close.  Why?  Foulds argues that the conflict of interest is doing all the work and keeping the financing available in conditions when any other normal provider of credit would have long walked away.  It's an interesting argument.  It doesn't necessarily resolve the question of whether the presence of stapled financing has an influence on the competitive sale, but it's an interesting approach.  

The paper, My Banker's Conflicted and I Couldn't Be Happier: The Curious Durability of Staple Financing, is appearing in the Delaware Journal of Corporate Law.

-bjmq