DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
Features of Subordinated Loans Equity kickers Subordinated loans may come with equity kick- ers, such as warrants. Cash interest There is often a limited option to pay cash inter- est on these loans. Under Danish law, unrestrict- ed cash payments of interest and/or instalments may jeopardise the subordination of the facility. Vendor Loans Vendor loans have played an important role in M&A transactions in recent years to bridge the valuation gap. They typically have both a sub- ordinated element and a PIK element, providing flexibility in financing structures. 3.3 Bridge Loans Typical Structures Used for Bridge Loans in the Danish Market Bridge loans are structured to provide short- term financing solutions that bridge the gap until more permanent financing can be secured. These loans are typically used in situations such as acquisitions, refinancing or capital raising, allowing borrowers to quickly access capital while arranging long-term financing. The typical features include: • short-term maturity: bridge loans are char- acterised by their short-term nature, usually with maturities ranging from a few months to a year; • high interest rates: due to their short-term and urgent nature, bridge loans often come with higher interest rates compared to tradi- tional loans; • bullet repayment: bridge loans typically fea- ture bullet repayment structures, where the
sition structure does occur, but it is not common and is usually only seen in large transactions where private debt is involved. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Mezzanine Facilities and Subordinated Instruments in Danish Acquisition Finance Mezzanine facilities or other subordinated instru- ments (whether contractual or structural) are rare in the Danish acquisition finance market. They are typically used in situations where the senior lender requires additional support in the form of equity-like instruments or where the transaction is of a size or complexity that senior debt alone cannot bridge the gap to equity. Characteristics of Subordinated Loans Structure Mezzanine facilities are often within the same borrower entity as the senior debt. Subordination Both mezzanine facilities and other subordinated facilities (being a lender in a guarantee and/or security providing entity under the senior debt) are contractually subordinated to the senior debt under the intercreditor agreement. Security The security is limited to the borrower’s assets, including target shares, but always second rank- ing (a financial assistance prohibition will often prevent security provided by subsidiaries). Payment-in-kind (PIK) loans PIK loans are often structurally subordinated to the senior facilities and raised by a holding com- pany higher up in the acquisition structure but are still subject to the provisions of an intercredi- tor agreement.
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