FINLAND Law and Practice Contributed by: Tarja Wist, Wist Attorneys
a private equity firm, it is less common in trans- actions involving industrial buyers who are able to finance small and medium-size acquisitions through their existing banking facilities and debt programmes and who usually seek to consoli- date the target in their existing operations. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Whilst the senior facility enjoys the highest rank- ing among the facilities and would typically be secured by all available assets, any mezzanine facilities rank junior and are either unsecured or enjoy a secondary ranking security. The second- ary ranking of the security may be obtained as a contractual undertaking in the intercreditor agreement or, if enforceability in relation to third- party creditors is sought, by means of granting an individual secondary ranking security interest over the encumbered assets. Mezzanine facili- ties may also be structurally subordinated to the senior facilities and raised by a holding company higher up in the acquisition structure. PIK loans – ie, mezzanine loans where the accrued interest is periodically added to the capital – are used, for example, in acquisition structures where the sellers reinvest a part of the sales proceeds back in the company. 3.3 Bridge Loans Bridge loans are short-term loans designed to fill a temporary financing gap, particularly in con- nection with acquisitions which are intended to be subsequently financed by a syndicated facil- ity or by the issuance of bonds or other securi- ties. In public takeover transactions, where the certain funds requirement applies, bridge loans are particularly useful. Typically, bridge loans are secured loans and not syndicated. Given the short term of a bridge loan
and its purpose, the conditions and covenants are typically limited, and no prepayment restric- tions apply. 3.4 Bonds/High-Yield Bonds Investment grade industrial buyers may finance their acquisitions by issuance of new bonds under their existing Eurobond programmes. In these cases, the bonds are typically unsecured and subject to similar terms and conditions that apply to the other bonds issued under the pro- gramme. Bond financing may also be used by other inves- tors in large acquisitions where the tighter inter- est margins in the bond market, as compared to banking lending, override the issuance and documentation costs. There is also a local Finnish bond market, which may be used for acquisition finance. 3.5 Private Placements/Loan Notes The increased number of non-bank lenders has reshaped the acquisition finance market over the last several years, as private credit funds and companies and alternative lending platforms have taken market share from traditional banks and provided alternative sources for acquisition finance through private placements and private loans. Acting outside of the banking regulation, non- bank lenders may be more flexible than tradi- tional banks in their financing terms and condi- tions. The structures used by non-bank lenders may also deviate from the traditional bank lend - ing structures and vary from simple secured loan notes to highly sophisticated structures making use of techniques traditionally seen in securitisa- tion and asset-based financing.
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