DENMARK Law and Practice Contributed by: Morten Krogsgaard and Lennart Meyer Østenfjeld, Moalem Weitemeyer
5. Security 5.1 Types of Security Commonly Used While the security package (or the “agreed secu- rity principles” outlining the security sought and the factors to be considered) is always subject to negotiations, in secured acquisition finance transactions the security package will typically provide one or more of the following: • share pledges; • account pledges; • assignment of intercompany receivables; and • assignment of share purchase agreement rights and/or warranty and indemnity insur- ance claims. Security in the form of mortgages over: real property; movables (including Danish intellec- tual property rights (IPR)); vehicles; and floating charges (comprising trade receivables, stock (inventory), “straight from the factory” vehicles, operating equipment and machinery, propel- lants and consumables, livestock, goodwill and Danish IPR) are subject to the registration fees referred to in 8.1 Stamp Taxes . These are often omitted due to cost/benefit considerations unless existing mortgages are in place and can be re-used without incurring a registration fee. It is possible to register negative pledges for a nominal cost, preventing the registration of mortgages over real property and movables as well as floating charges without the consent of the lender/security agent. In acquisition finance transactions, the security package is typically implemented as follows. • Prior to closing, security is granted over the shares in the acquisition vehicle and its rights under the acquisition agreements.
surrounding the transaction, including standstill provisions. 4.3 Role of Hedge Counterparties Hedging Requirements in Facility Agreements Under the facility agreement, the borrower may be required to enter into hedging arrange- ments for leveraged transactions. These hedg- ing arrangements are designed to mitigate risks associated with interest rate fluctuations and exchange rate fluctuations. The borrower may incur payment obligations to the hedge counter- parties under these hedging agreements. Intercreditor Agreement Where there are multiple lenders, the hedge counterparties will be included as parties to the intercreditor agreement governing the rela- tionship between the various creditors. The approach adopted by the LMA precedent inter- creditor agreement for leveraged acquisition finance transactions is often mirrored in Dan- ish intercreditor agreements. However, it is not uncommon for transactions to deviate from the type assumed by the LMA documents. Ranking and Security Package Hedging liabilities rank pari passu with the facili- ties being hedged, meaning they have equal standing in terms of repayment priority. Addi- tionally, hedging liabilities share in the security package provided under the facility agreement. Ordinary Payments and Enforcement Ordinary payments under the hedging arrange- ments are usually permitted until the senior creditors enforce their rights or an insolvency event occurs. This ensures that the borrower can continue to manage interest rate and exchange rate risks effectively until the enforcement or insolvency event.
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