FINLAND Law and Practice Contributed by: Tarja Wist, Wist Attorneys
3.6 Asset-Based Financing Asset-based lending structures are most com- monly used in real estate acquisition finance, where the underlying real estate and the rental income deriving from the real estate are collat- eralised to serve as security to the loan. Large real estate holdings may be separated into dif- ferent sub-portfolios, and the acquisition facility be divided accordingly into several loans, each secured by a given sub-portfolio. Each such loan may also be limited to the proceeds from the relevant sub-portfolio by means of non-recourse financing. This structure makes it possible to separate high-risk assets from other assets and to set a higher interest cost on the loan financing the high-risk assets. The Finnish real estate market is well suited for asset-based lending because both housing and commercial real estate is largely held through real estate companies. In housing companies and so-called mutual real estate companies, the articles of association provide for a mutual struc- ture whereby each shareholder is entitled to pos- sess a certain part of the company’s real estate. This right of possession also includes the right to rent and to receive and dispose of the rental income. As the rental income, therefore, belongs to the shareholder, and not the real estate com- pany, the rental income may also be used as security to the acquisition facility, and the restric- tions on upstream security do not apply (see 5.4 Restrictions on Upstream Security , 5.5 Finan- cial Assistance and 5.6 Other Restrictions ).
and to regulate the order, the so-called waterfall, in which any proceeds are paid to the creditors, both in the normal course prior to a default and after a potential enforcement. Under an intercreditor agreement, all intercom- pany loans and receivables between the borrow- er and other obligors would typically be subordi- nated to any claims of the financiers, including any mezzanine or subordinated debt provided by external financiers. Key elements of an inter- creditor agreement also include the authorisa- tion of the facilities agent to represent all financi- ers and to co-ordinate any enforcement actions as well as an undertaking by the financiers not to seek enforcement in their own right. To address legal considerations relating to upstream security (see 5.4 Restrictions on Upstream Security , 5.5 Financial Assistance and 5.6 Other Restrictions ), intercreditor agreements also include provisions, so-called limitation language, limiting the liabilities of the obligors (other than the borrower) as may be required by the applicable laws. 4.2 Bank/Bond Deals In bank/bond deals a key element of the inter- creditor agreement is the regulation of the pri- orities among the bank lenders and the bond lenders. The bank facility may also be provided as a bridge loan which is intended to be fully repaid from the proceeds of the bond issuance. In such cases the claims under the banking facility have a senior ranking until the repayment, and the bond lenders elevate to the senior position once the bridge loan is repaid and the security is handed over.
4. Intercreditor Agreements 4.1 Typical Elements
Intercreditor agreements are designed to arrange the priorities among the creditors of the borrower and other obligors under the finance documents,
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