AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
ordinated to the senior debt. This also avoids the often-protracted negotiations between sen- ior and mezzanine lenders on the intercreditor arrangements to achieve a contractual subor- dination of these facilities. Holdco financings have become increasingly popular as a means to reduce debt service in the current high inter- est rate environment, as the holdco can typically elect to either pay or capitalise (ie, payment-in- kind – PIK) interest on such debt. For similar reasons, on occasions, a further spe- cial purpose company (topco) will be interposed between the sponsors and the holdco, the pur- pose of which is to facilitate the raising of PIK debt, which is again structurally subordinated to both the mezzanine and senior debt. 3.3 Bridge Loans Bridging debt facilities may be used where it is intended that the acquisition debt will be refi- nanced shortly after completion of the acquisi- tion by either a capital raising or a high-yield debt or private placement raised in the US market. Typically, bridging facilities have a tenor of 365 days or less. Such facilities are less common in the Australian leveraged finance market than the facilities mentioned in 3.2 Mezzanine/Payment- in-Kind (PIK) Loans , but are sometimes seen in situations where debt commitments need to be put in place in a compressed timeframe. 3.4 Bonds/High-Yield Bonds The Australian debt capital markets are tradition- ally not as diverse (or deep) as those in Europe or the USA. As such, there is no domestic high- yield market to speak of. There have been limited examples of acquisi- tions accompanied by subordinated retail notes issuances (which sit alongside a more traditional senior loan structure), although these are rela-
tively rare. Such issuances are made to retail as opposed to institutional investors, so they are distinguishable from high-yield products. While the domestic Australian market does not cater for the high-yield needs of sponsors, it is common for Australian companies to seek to raise funding through offshore capital markets. Accordingly, there are examples of companies that have sourced funding through the US high- yield and private placement markets (see 3.5 Private Placements/Loan Notes ). 3.5 Private Placements/Loan Notes Consistent with the position expressed in 3.4 Bonds/High-Yield Bonds , domestic private placement transactions are not a feature of Aus- tralian acquisition financings. However, the “tapping” of the US private place- ment market is a common feature for sponsors and companies that seek longer term debt. This style of financing is particularly common in the infrastructure space, where the longer-term nature of the debt (together with the flexible terms) is attractive to investors. Often, a private placement will be sought to refinance a portion of the original acquisition debt (rather than being a form of debt that is sought to fund the acquisi- tion itself). Accordingly, sponsors who are raising debt in the Australian market will often have their inter - creditor and security sharing arrangements reviewed by US counsel to ensure that they can be marketed to investors in the private place- ment markets. 3.6 Asset-Based Financing Asset-based finance structures in Australia have followed structures implemented in the Euro- pean market, and products include borrowing
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