NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
granted in favour of a security trustee for the benefit of all creditors, with an intercreditor agreement entered into between the creditors. The intercreditor agreement will set out: • the ranking and order of priority of all creditors; • permitted payments to each class of creditor; • turnover trust provisions; and • the circumstances when the junior creditors can step in to control enforcement. For real estate transactions, the junior creditor will usually take second lien security (rather than share in a common security pool) with a customary deed of subordination and priority entered into between the creditors. This deed will cover matters similar to those set out in an intercreditor agreement. Alternatively, a junior creditor could lend at a holdco level. Here, the junior creditors will usually receive first ranking security over all the assets of the holdco bor - rower (which would usually be limited to shares in the opco and any receivables under shareholder loans made to that company). The junior creditor will have no direct recourse to the operating business, and will also have no contractual nexus with the opco lenders. Borrowers that need junior capital tend to be term- takers, so junior private capital tends to be provided on more lender-friendly terms when compared with the terms obtained by sponsors on private-credit- funded LBOs. Private credit providers may also require equity upside (such as warrants) in addition to typical debt returns Private credit providers often offer payment-in-kind (PIK) debt. PIK is more common for special situations or distressed borrowers, and has become more preva - lent due to increasing base rates. On more leveraged structures, borrowers will be given the option to PIK interest, subject to certain condi - tions, on the basis that the PIK rate is higher than the cash-pay rate. In senior/mezzanine transactions, there (usually for early-stage/venture deals). 3.8 Payment in Kind/Amortisation
is often a requirement for interest to PIK if certain trig - gers are hit (such as financial covenants deteriorating below agreed thresholds). Private credit funds tend not to require amortisation, preferring to keep more of their funds at work for long - er, but will require mandatory prepayments for certain events (such as disposals). Funds that participate alongside banks in senior club/ syndicate structures tend to offer terms more consist - ent with a traditional bank financing (such as amorti - sation and no call protection). 3.9 Call Protection Most private credit providers acting in New Zealand require some form of call protection, although the details vary between funds and on a deal-by-deal basis. Some funds require a form of minimum inter - est (eg, 12 months’ worth of interest), whereas others may require the net present value of interest over the remaining non-call period, potentially capped at an agreed percentage of the amount prepaid. New Zealand has two types of withholding tax that apply to interest, resident withholding tax (RWT) and non-resident withholding tax (NRWT). Resident Withholding Tax (RWT) RWT must be withheld on payments of resident pas - sive income, including interest, made by New Zealand tax residents or non-residents carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand. Resident passive income includes payments to non-residents for the purpose of a busi - ness they carry on in New Zealand through a fixed establishment, and offshore registered banks operat - ing through a New Zealand branch (who are not asso - ciated with the payer). Most New Zealand-based private credit funds would have RWT-exempt status, such that RWT is not with - held from interest payments. 4. Tax Considerations 4.1 Withholding Tax
174 CHAMBERS.COM
Powered by FlippingBook