JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
Interest The agreement usually stipulates:
• Bankruptcy Act (Act No 75 of 2004); • Corporate Reorganisation Act (Act No 154 of 2002); and • Civil Rehabilitation Act (Act No 225 of 1999). However, given that statutory subordinated claims are subordinate even to general claims under the insolvency procedures, they are not preferred by mezzanine financiers and are not used for mezzanine loans in acquisition finance. Structural Subordination Structural subordination whereby the mezza- nine financier provides loans to a holdco of the borrower was historically rarely used in Japan. Mezzanine financiers in Japan usually sought a position that was at least equal to the general creditors (in a structural subordination arrange- ment, the position of the mezzanine financier is inferior to the general creditors and equal to the equity holders). However, due to strong demand from private equity funds (especially US or Euro- pean private equity funds), structurally subordi- nated mezzanine loans (usually called holdco loans) are becoming increasingly used. In these cases, no intercreditor agreement will be executed unless guarantee or security inter- ests over a senior loan borrower or target group companies are provided in favour of the holdco mezzanine lenders. Payment of Principal The agreement usually stipulates that the matu- rity of the principal payment of the subordinated loans is to be six months or one year after the maturity of the senior loans. If the senior loans are not fully repaid at the time of maturity of the subordinated loans, the principal of the subor- dinated loans will not become due and payable until the senior loans are fully repaid.
• payment of the cash coupon portion of the interest on the subordinated loans is due one business day after the debt service date of the senior loans, subject to certain payment block events; • payment of the payment-in-kind (PIK) portion of the interest on the subordinated loan is due on the maturity date of the subordinated loans. If senior loans are not fully repaid at the time of maturity of the subordinated loans, the PIK portion of interest will not become due and payable until the senior loans are fully repaid, in the same way as the principal of the subordinated loans; and • if any of the specified default events occurs or continues, or if any breach of certain finan- cial covenants occurs on a certain interest payment date, the due date for the interest (cash coupon portion) automatically jumps to the next interest payment date. Standstill If an event of default under both the senior loan agreement and the mezzanine loan agreement occurs, or if any breach of certain financial cov- enants occurs, a common negotiation point is whether mezzanine financiers may accelerate the mezzanine loan after the expiration of a cer- tain agreed period of time (standstill period). Fees In practice, in Japan, an upfront fee is paid to the mezzanine financier only at the time of the drawdown of the subordinated loans under a fee letter. There is therefore no provision relat- ing to the payment of the fees in the intercreditor agreement.
256 CHAMBERS.COM
Powered by FlippingBook