DOMINICAN REPUBLIC Law and Practice Contributed by: Marielle Garrigó, Urania Paulino, Eduardo Pellerano and Ricardo Pellerano Nadal, Pellerano Nadal Law & Consulting
pledges over shares, movable assets, etc, the priority is determined in the order that the secu- rity is registered in the Movable Collateral Elec- tronic System ( Sistema Electrónico de Garantías Mobiliarias ), in accordance with Law No 45-20 on Movable Collateral Guarantees. Under this system, legal subordination is contractually agreed among the parties involved. In practice, foreign law-governed intercreditor agreements are arranged between senior and subordinated lenders, which state that senior lenders will be registered as the secured parties in the Domini- can Republic, but that they recognise the sub- ordination of junior lenders’ claims over the secured collateral. The authors are not aware of payment-in-kind loans being used for acquisition finance. 3.3 Bridge Loans Locally, financing structures and documentation are generally similar and, therefore, bridge loans are not so different from senior loans, except their term is usually significantly shorter than for traditional loans. These loans may also be unse- cured in some cases, or if secured, the security package may be simpler. For cross-border trans- actions, bridge loans will typically be granted by international banks under foreign law-governed documents. 3.4 Bonds/High-Yield Bonds While issuing corporate bonds to acquire tar- get companies or repay bridge loans used for acquisition financing may be common in other jurisdictions, it is not common in the Domini- can Republic, given that the local securities market is still in development. Companies may issue bonds locally and have done so more fre- quently in recent years, but we are not aware of this being a common structure for acquisition finance.
Nonetheless, it may be the case that foreign buyers are using this method and issuing bonds abroad to acquire local targets. 3.5 Private Placements/Loan Notes Similar to the response in 3.4 Bonds/High-Yield Bonds , the authors are not aware of this struc- ture being used locally for acquisition finance. 3.6 Asset-Based Financing It is common in acquisition finance structures to see secured operations where collateral, such as mortgages, pledges and assignment of rights over assets, is granted by the debtor to the lend- ers. In the case of private equity acquisitions, and particularly in LBOs, asset-based financing may be used where the assets of the target or the newly merged company will be used as collat- eral. The types of assets used as collateral may include accounts receivable, inventory, equip- ment or machinery. If inventory is used as col- lateral, lenders should establish mechanisms for protection when there is a rolling inventory. Intercreditor agreements in acquisition finance in the Dominican Republic are usually governed by foreign law and will typically regulate the rela- tionship between the various lenders’ part of a financing. These agreements generally include provisions regarding the following elements. • Sharing of information – the lenders should use reasonable and prompt efforts to make available to the other lenders any mate - 4. Intercreditor Agreements 4.1 Typical Elements
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