DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
Accounts receivable financing Companies can use their accounts receivable as collateral to secure funding. This allows busi- nesses to access cash based on the value of their outstanding invoices. Inventory financing Businesses can leverage their inventory to obtain financing. This type of financing is based on the value of the company’s stock of goods. Machinery and equipment financing Companies can use their machinery and equip- ment as collateral to secure loans. This provides businesses with the necessary capital to pur- chase or upgrade their equipment. Real estate holdings financing Businesses can leverage their real estate hold- ings to obtain financing. This type of financing is based on the value of the company’s property assets. Denmark has a ubiquitous and competi- tive mortgage financing regime based on cov- ered bonds, making real estate a popular choice for long-term asset-based financing, especially where they can be registered without incurring stamp duties (see 5.1 Types of Security Com- monly Used and 8.1 Stamp Taxes ). NAV Financing In other jurisdictions, net asset value (NAV) financing is utilised when undrawn investor com- mitments are low or when the fund’s investment phase has concluded. NAV facilities have proven to be a strategic tool for investment funds, offer- ing several advantages: • liquidity needs: NAV facilities can provide the necessary liquidity to distribute returns to investors, make additional investments or support the financial stability of distressed portfolio companies; and
• gap filling: these facilities can fill the gap when financing at the portfolio company level does not yield the desired outcomes. While NAV financing remains relatively rare in the Danish market, its relevance may increase depending on the development of the M&A mar- ket. As the market evolves, NAV financing could become a more integrated part of acquisition financing. 4. Intercreditor Agreements 4.1 Typical Elements Subordination Subordination can be established through: • structural subordination: the senior lender lends to a company within a group of com- panies that is positioned lower in the group structure (closer to the operational profit base) than the company to which the junior lender lends; and • contractual subordination: the senior lender and the junior lender enter into an agreement where the junior lender agrees that the senior debt will be paid in full before any payments are made to the junior lender. These options may be combined but contractual subordination is not usually a requirement when the junior lender is structurally subordinated. Intercreditor Agreements In each case, intercreditor agreements are com- mon and are drafted to the specifics of each transaction. Acquisition finance transactions often involve multiple sources of funding, such as equity, senior debt, shareholder loans, vendor loans and intra-group loans, where the interests are not aligned.
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