This article is fourth in a series of five which look at some of the deal and document trends the Shoosmiths leveraged finance team have seen in the mid-market in 2025. Please get in touch with Shoosmiths’ leveraged finance team if you would like to discuss anything in this article.

Published 18 December 2025

Equity Commitment Letters are making a comeback, with binding commitments expected in specific circumstances rather than the more woolly commitments we have seen in the past. It goes without saying that these types of commitment are typically asked for where there are credit concerns in the underlying business; for example earn-outs which are not expected to be self-funding (when looking across the wider group) have been the ultimate trigger on some recent transactions.

Approaches in relation to deferred terms continue to vary. The detail of the permitted payment regime and the impact of deferred consideration on covenants are often hot topics during negotiations. There are varied approaches, particularly in terms of limits on deferred consideration for permitted acquisitions. Typically, we expect that contingent (earn-out) consideration has fewer (if any) limits in terms of payment; with it usually not being contractually subordinated and not considered Borrowings until it crystallises.

Conversely, non-contingent consideration is more regularly subordinated, with tighter controls on payment during the term. That control usually results in less infiltration of the covenants, with the non-contingent deferred consideration often carved out of debt whilst subordinated. Approaches vary deal by deal depending on the buy-and-build model, whether acquisitions are self-funding, and whether the sellers due the deferred/earn out consideration are rolling. Quadruple and triple newco structures can also help a sponsor with deferred being issued by an entity “out of the banking Group” resulting in less documentation issues.