JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
Sharing Arrangements Under Japanese law, it is generally possible to grant ranks of security interest, so it is common for only second-rank security interests to be given to the mezzanine financier. If the enforce- ment of the security interests is conducted through statutory enforcement procedures, no distribution is made to the second-rank security interest holders until and unless the first-rank security interest holders are fully repaid. How- ever, this distribution rule does not apply if the enforcement of the security interests is conduct- ed through private auction or private sale. It is therefore common for the intercreditor agree- ment to provide that the mezzanine financier must release its second-rank security interests if the security interests are enforced through pri- vate auction or private sale and the senior lend- ers request this. In addition, if any distribution is made to the mezzanine financier prior to the full repayment of the senior loans, it is usually provided within the intercreditor agreement that any distribu- tions received by the mezzanine financier must be turned over to the senior lenders. Subordination of Equity/Quasi-Equity It is common for the senior lenders and the mez- zanine financiers to enter into an intercreditor agreement, even where the mezzanine finance is provided in the form of preferred shares. In these cases, the dividend claims or the mon- etary claims arising from the exercise of the redemption rights of the preferred shares are treated as the subordinated claims under the intercreditor agreement. The agreement usually stipulates that: • the dividend claims must be paid one busi- ness day after the debt service date of the senior loans, subject to the same payment
block events as those for subordinated loans; and • the redemption rights cannot be exercised until and unless the senior loans are paid in full. 4.2 Bank/Bond Deals As mentioned in 3.4 Bonds/High-Yield Bonds , a high-yield bond market has not yet developed in Japan and bank/bond deals are therefore not currently available. 4.3 Role of Hedge Counterparties Unlike in the US and European markets, bor- rowers are not required to enter into interest rate swap arrangements in the Japanese acquisition finance market. Hedge counterparties are there- fore not typically parties to intercreditor agree- ments in the Japanese market. 5. Security 5.1 Types of Security Commonly Used Types of Security Acquisition finance lenders in Japan usually create security interests over each asset of the target and its wholly-owned subsidiaries and perfect these security interests. As opposed to the use of floating charges in other jurisdictions, this process incurs extra time and costs in com- pleting the creation of the security interests and their perfection. There are various kinds of security interests under Japanese law, such as: • pledges ( shichi ken ); • security interests by way of assignment ( jouto tanpo ); and • mortgages ( teitou-ken ).
257 CHAMBERS.COM
Powered by FlippingBook