AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
willing to issue opinions addressed to the finan- ciers, particularly if they are drafting the docu- ments or if the acquisition debt is being raised in the USA to fund an Australian acquisition. In a syndicated financing, it is typical for reliance on the legal opinion to be offered to financiers joining primary syndication within the first three or six months. The one exception to the above rule is in the context of an offshore capital transaction (eg, a high-yield bond), where the borrower’s lawyers will typically opine on “fair disclosure” in the con- text of the Australian-related disclosure and risk factors in the offering memorandum. While each law firm has its own form of prec- edent opinion, most are consistent (in substance but not necessarily form) with a precedent legal opinion made publicly available by the Banking and Financial Services Law Association of Aus- tralia. Traditionally, a senior Australian acquisition finance package featured an amortising Term Loan A (though this is no longer common), together with a bullet Term Loan B, to collective- ly fund the acquisition of the target group. The financing package will usually include a revolving credit facility to be used for the group’s working capital and general corporate purposes (includ- ing any contingent instrument requirements) and may include capex or acquisition facilities, which tend to be on a committed basis. These facilities will typically rank pari passu in both payment and security. 3. Structures 3.1 Senior Loans
However, in recent times, the market has seen a shift away from the traditional senior bank loan capital structure to standalone TLB facilities and unitranche loans offered by institutional lenders (which generally contemplate limited amortisa- tion). This competition has led the major domes- tic banks to offer more flexible terms in both their traditional leveraged products, including reduc- ing or eliminating amortisation and in relation to financial covenants. This has now become the norm. Unitranche facilities are generally accompa- nied by “super senior” revolving credit facility for working capital and contingent instrument purposes. Facilities of this nature are typically provided by a local bank and rank in priority to the term facilities on enforcement. In addition to the above, loan documentation increasingly includes mechanics that provide the borrower with the flexibility to incur accordion or incremental facilities, which facilitate increased leverage within the confines of the existing facil- ity documentation. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans “Opco” mezzanine financing was previously a common feature of the Australian acquisition finance market, but is something of an anachro- nism in the current market. If additional leverage is required to fund larger acquisitions, sponsors typically achieve this via “holdco” instrument. In these circumstances, mezzanine financing is provided at a holdco level above the senior debt obligor group. This structure enables sponsors and senior lenders to avoid the complexity of having the subordi- nated debt provided at the same level as the senior debt, as the debt will be structurally sub-
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