Pack workspace preview · Debt Finance
Negative undertakings
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No security over assets
How does a negative pledge restrict the borrower from creating security over its assets?
The central negative undertaking is the negative pledge. This restricts the borrower from creating or permitting security over its assets. The lender is trying to stop
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Building block · Purchase-price mechanics
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Just one point missingYour blurt
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A locked box fixes the equity price by reference to an agreed historic balance sheet, while completion accounts adjust a provisional price after completion for the actual cash, debt and working capital. The seller usually prefers locked-box certainty and the buyer may prefer completion accounts when the target is volatile. A locked box also needs protection against leakage before completion.
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Overall verdict
You identified the timing and commercial preference of each mechanism. Tighten the locked-box analysis by locating the economic risk-transfer date and naming the buyer's contractual protections.
What you got right
- “fixes the equity price by reference to an agreed historic balance sheet” captures the locked-box starting point.
- “adjust a provisional price after completion for the actual cash, debt and working capital” states the core completion-accounts adjustment.
How to improve
Polish, not repair — the substance is in place.
“protection against leakage” needs the operative detail: define prohibited and permitted leakage, require a no-leakage covenant, and provide a pound-for-pound recovery route.
Best answer
A locked box fixes the price using agreed historic accounts and treats economic risk and benefit as passing from the locked-box date, so the buyer relies on accounts warranties and contractual leakage protection through completion. Completion accounts instead adjust a provisional price after completion against agreed cash, debt and working-capital definitions. Locked box favours price certainty; completion accounts better capture movement where the target is volatile or the buyer lacks confidence in the historic position.
Quick check
What three contractual devices protect a buyer from value extraction during a locked-box period?
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