Partner
Attorney at Law (Germany)
M&A Vocabulary – Understanding the experts: “Legal Opinion”
In this ongoing series, different M&A experts from RÖDL’s offices around the world introduce an important term from the English technical language of the transaction business, along with notes on its usage. This is not about scientific-legal precision, linguistic subtleties, or exhaustive presentation, but rather about conveying or refreshing the basic understanding of a term and providing some useful insights from consulting practice.
The concept of the legal opinion originally comes from Anglo-American law and, generally speaking, is a special form of a lawyer’s legal opinion.
Legal opinions are now also routinely required in Germany, including in the context of international financing transactions and capital market transactions, and form part of the transaction documents.
A legal opinion assesses certain legal matters vis-à-vis the client or a third party, in particular banks (so-called third-party opinions). The wording and structure of a legal opinion are now largely standardized.
Purpose
A legal opinion is typically used to confirm the existence of a legal relationship, for example the legality, validity and enforceability of a contract.
In financing transactions, the typical content of a legal opinion relates, on the one hand, to the transaction documents and security and, on the other hand, to the legal status of the borrower and/or other guarantors and security providers. The delivery of one or more legal opinions is usually a condition precedent to disbursement in a financing transaction.
A distinction is made between opinions that, among other things, confirm the validity and enforceability of loan and security agreements (so-called “enforceability opinions”) and those that confirm the existence of the borrower or security provider, as well as the fact that all required corporate approvals have been obtained and that the signatory to the agreements has the necessary authority to represent the company (so-called “capacity opinions”). In addition, specific opinions are often obtained that confirm certain tax assumptions (so-called “tax opinions”).
Structure
A legal opinion generally follows a three-part structure: assumptions, opinion statements and qualifications.
The assumptions serve to underpin the facts to be reviewed. Facts are often assumed to be true here that reasonably lie outside the drafter’s knowledge/ability to verify, e.g., statements regarding the legal capacity of the persons acting. The opinion statements are the core of the opinion, for example confirming the validity of a contract. The necessary legal limitations and/or reservations in relation to the legal opinion depend on the specific case and may relate to entire areas of law or specific issues, such as limitations on the enforceability of security in insolvency scenarios.
Addressees
Even if the issuer of the legal opinion is often engaged by the borrower, the addressees of the legal opinion are generally the financing banks or the institutions acting as arranger for the capital market transaction. The group of addressees is also often extended to include the institutions that join in the first syndication round.
Conclusion
The delivery of legal opinions in financing transactions or in connection with the issuance of securities on the capital markets is now standard and, given their information and risk-disclosure function, should not be underestimated.
From the newsletter
“Corporate Law, Deals & Capital Markets” To our
M&A Vocabularies