Transaction Advisory Practice

JLT Specialty USA’s Transaction Advisory Practice offers products that cater to potential liabilities arising out of merger and acquisition transactions.

Transaction liability coverage helps facilitate merger and acquisition (M&A) deals by removing obstacles to transactions, unlocking funds otherwise reserved against potential liabilities, and offering peace of mind to buyers and sellers.

Our transaction advisory practice comprises many former M&A and tax lawyers who are well versed in the specific challenges and nuances of M&A activities and transaction liabilities.

They seek to understand your M&A risk concerns and then create a solution to mitigate those concerns, working with the best insurance markets given deal structure, size, and sector.

WHAT WE DO

Transaction Advisory Practice

Mergers and acquisitions can involve a great deal of uncertainty for both the buyer and seller: tax liability, environmental concerns, and litigation-related issues, for instance. Sometimes it is this uncertainty – more than any other aspect of the transaction – that kills the deal.

JLT Specialty USA has solutions to help buyers and sellers make the M&A process more efficient, expeditious, and certain.

Our transaction liability products facilitate the M&A process by removing obstacles to transactions, unlocking funds reserved for potential liabilities, and transferring potential risks. Following are some of our principal transaction liability solutions.

Transaction Advisory Practice

Since every M&A deal is different, we are happy to work with you to customize a solution – or create a new one – that meets your specific needs.

Our areas of expertise include:

  • Representations and warranties (reps and warranties, or R&W)
  • Fraudulent conveyance insurance
  • Successor liability insurance
  • Tax liability insurance (including for renewable energy development and investment)
  • Contingent liability and litigation insurance.

FAQs

Investments in renewable energy projects by TEIs are motivated by federal investment tax credits and other tax benefits, which comprise a substantial portion of their return on investment. Entitlement to these tax benefits, however, is subject to a number of tax risks, including those relating to the valuation of the project (particularly in solar projects that qualify for the investment tax credit) and the structure employed to facilitate the TEI’s investment.

A tax credit insurance policy protects a TEI in the event of a challenge by the IRS of the tax credits or depreciation deductions claimed. Tax credit insurance indemnifies the insured TEI (subject to retention) for defense costs, the value of the tax benefits lost, interest and penalties due, and a gross-up.

Obtaining broader protection

The guarantee and indemnity protections provided by developers in these transactions are typically limited in scope and amount. In contrast, tax credit insurance can be structured to provide comprehensive protection of a TEI’s interest in expected tax benefits. In Rev. Proc. 2014-12, the IRS recognized that tax credit insurance was an effective tool to provide a TEI with a source of recourse for a risk that could not be guaranteed by a related party under the safe harbor.

Accessing insurer credit quality

Tax credit insurance allows the insured tax equity investor to look to an insurer with strong credit quality for protection on these tax issues, rather than to the developer or other counterparties.

Easing negotiations with debt providers

Tax credit insurance provides liquidity if and when the IRS challenges the credits and/or deductions reported by a TEI. This potentially simplifies negotiations with third-party debt providers that might otherwise have become impaired if a tax challenge were to trigger a cash-sweep mechanism in favor of the TEI.

For investment tax credit deals, including solar projects, tax credit insurance policies can be broadly drafted to cover the following risks:

  • Structural risk: project partnership will be respected, as will credit and depreciation allocations
  • Qualified basis risk: qualification of equipment and project valuation
  • Placed-in-service risk
  • Recapture risk

Exclusions from coverage on tax credit policies typically include the insured’s ability to utilize tax credits or deductions as well as misrepresentations by the insured and changes in law.

WHY JLT

Transaction Advisory Practice

We listen to our clients’ M&A risk concerns and then tailor a solution to mitigate those concerns.

We seek the best insurance markets to address those risks within the context of the deal structure, size and sector – we don’t just take a product off the shelf and try to make it fit.

JLT’s U.S. Transaction Advisory Team is part of JLT’s global M&A practice and works to seamlessly reduce risk for M&A deals regardless of location of buyer, seller or target.

Transaction Advisory Practice

Our value is focused on:

  • Global execution ability
  • Innovation around the use of insurance for non-traditional risk, such as successor liability or fraudulent transfer
  • Ability to couple other insurance solutions such as environmental coverage to a traditional R&W policy to deliver a more comprehensive solution for our clients.

Insurance Solutions

Representations And Warranties (R&W) Insurance

R&W insurance is designed to protect against breaches of representations in a stock or asset purchase agreement (SPA). All U.S. business sectors are generally insurable.

For a seller, the policy covers damages resulting from a breach, plus defense costs. The policy gives the seller financial certainty by backstopping the seller’s indemnity obligation or escrow, thereby preserving the seller’s sale proceeds against such claims or clawbacks.

For a buyer, the policy also responds to damages arising from breaches of representations in the SPA, as well as defense costs in relation to third-party claims. The policy is often used by buyers where the seller’s cap or the survival period is insufficient for buyer requirements. The policy also allows buyers to make a more attractive offer by minimizing or eliminating seller indemnity or escrow requirements.

A one-time premium is usually in the range of 2% to 4% of limits purchased, subject to the complexity of the deal.

Tax Liability Insurance

Tax insurance is used to ring-fence potential liabilities arising from specific, identified tax issues, in the event of a challenge by tax authorities. Insurers generally consider situations where a legal or accounting opinion supports the structuring of a transaction. Buyers are typically concerned about the possibility of a challenge by the tax authorities and the impact of any loss on the deal metrics.

Tax liability insurance premiums are in the range of 3% to 8% of the limit purchased for straightforward issues, but may be more for highly structured deals. The pricing will be governed by the likelihood of a successful challenge to the underlying tax issue or position.

Contingent Liability And Litigation Insurance

Similar to tax liability insurance, insurance for contingent liabilities and litigation can transfer to insurers known risks that create purchase price obstacles, or cap litigation exposures at the target company which otherwise could derail deal economics or completion.

Typical classes of such risks that have been insured include securities claims, product liability, employment claims, IP disputes, environmental liabilities, and contractual disputes, but other issues are also insurable.

It is difficult to generalize pricing for these products as each scenario is very different, but premium rates would typically start at 5% of the limit purchased, but may be higher depending on the context of the risk.

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