NETHERLANDS Law and Practice Contributed by: Eduard Scheenstra, Etiënne Courbois and Jenny Noordermeer, CMS
1.5 Banking and Finance Techniques The banking and finance sector is rapidly transform- ing to address the evolving needs of investors and borrowers, shaped by regulatory changes, techno- logical innovation, increased competition, and greater sophistication among market participants. HoldCo Structures and Layered Capital HoldCo (holding company) structures are now com- mon in leveraged finance and private equity. By plac- ing debt at the holding company level, sponsors gain flexibility in managing cash flows from multiple sub- sidiaries and isolating liabilities. HoldCo debt is struc- turally subordinated to OpCo (operating company) debt, enabling layered capital structures that appeal to both senior and subordinated investors. This also facilitates add-on acquisitions, as the holding com- pany can raise capital without directly impacting oper- ating entities. Preferred Equity and Hybrid Instruments Preferred equity is increasingly used as a flexible financing tool, especially when traditional leverage is constrained. It combines debt-like features (priority in payment, fixed returns) with equity-like charac- teristics (potential upside, no fixed maturity). Hybrid instruments, such as convertible notes and payment- in-kind (PIK) preferred shares, offer tailored solutions for investors seeking higher yields with moderate risk, and for borrowers, they provide growth capital without There is a strong trend toward bespoke financing solu- tions – unitranche loans, revenue-based financing, and asset-based lending – designed to match unique borrower cash flows. Flexible covenant packages, including covenant-lite structures, are increasingly common. The rise of private debt funds, institutional investors, and non-bank lenders has diversified the investor base, increased competition, and expanded available products. Larger deals are often syndicat- ed or structured as club deals, spreading risk and accessing deeper capital pools. significant dilution or cash flow pressure. Customisation, Innovation, and Broader Participation
grade ratings or operating in riskier sectors. This has enabled more firms to finance growth, acquisitions, or restructurings. The competitive nature of the high-yield market has led to more flexible financing terms, such as covenant-lite bonds and loans, longer maturities, and innovative features. The market is highly sensi- tive to investor sentiment: strong demand compresses spreads and lowers borrowing costs, while uncertain- ty widens spreads and restricts access. Trends from the high-yield market often influence the broader loan market, encouraging more borrower-friendly terms in leveraged loans. However, the increased flexibility and weaker covenants heighten credit and liquidity risks, requiring investors and lenders to strengthen risk assessment and monitoring as the credit cycle evolves. 1.4 Alternative Credit Providers Over the past decade, the Dutch loan market has seen significant growth in alternative credit providers, reflecting a broader European trend. While traditional banks remain the main players, non-bank lenders – such as private debt funds, direct lending platforms, and fintech companies – have steadily increased their presence, especially in the mid-market and SME sec- tors. The Netherlands’ open economy and robust legal framework have attracted international private debt funds and direct lenders, who now offer a wide array of products. Fintech and peer-to-peer platforms have also become more prominent, particularly for smaller businesses and consumers. Alternative lenders are generally more flexible than banks, often providing higher leverage, longer matur- ities, and customised repayment schedules. Their competitive approach has led to more borrower- friendly terms, such as covenant-lite structures and innovative features like payment-in-kind interest and accordion facilities. These lenders can also deliver faster credit decisions and greater execution certainty, as they face fewer regulatory constraints. The rise of alternative lenders has increased compe- tition, pushing banks to improve their offerings and resulting in better terms for borrowers. However, this shift also spreads credit risk more widely and raises concerns about transparency, regulatory oversight, and potential systemic risks during market stress.
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