NETHERLANDS Law and Practice Contributed by: Gianluca Kreuze, Ruben den Hollander, Anne van Geen and Sanne van Esterik, Loyens & Loeff
In addition, an increasing number of direct lend- ers are introducing stretched senior products aimed at competing with the syndicated term loan B market, as they diversify their strategies to deploy more capital. Stretched senior solu- tions add an additional layer of senior-like debt, effectively stretching the borrowing capacity while maintaining a higher priority in repayment hierarchy compared to subordinated debt. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Mezzanine financing can be an important com- ponent of the capital stack in acquisition finance transactions in the Netherlands. Mezzanine financing is structured as subordinated debt, meaning it ranks behind senior debt in terms of repayment priority but before equity. This sub- ordination increases the risk for mezzanine lend- ers but that is balanced by higher interest rates and potential equity upside through conversion rights, warrants or equity kickers if certain condi- tions are met. The interest rates of mezzanine loans can be fixed or floating and are often structured to include a cash pay component along with a PIK component. The latter can be attractive to bor- rowers as it provides flexibility in managing cash flow, especially in the early stages of ownership when cash may be limited due to operational changes or investments. 3.3 Bridge Loans In some cases, a bridge loan may be used to provide short-term financing to facilitate the acquisition of a target company. Bridge loans are intended to provide immediate financing and bridge the gap between the acquisition closing date and the availability of long-term financing (therefore often referred to as interim financing), such as high yield bonds (bridge to bond). The
bridge commitment is usually set up to incentiv- ise the borrower to pursue permanent financing options in the commitment phase and before the closing of the acquisition, or if the bridge loan is utilised, to refinance it as soon as possible after the transaction has closed. 3.4 Bonds/High-Yield Bonds Borrowers can opt to (partly) finance an acquisi- tion by raising funds on the debt capital markets, including through the issuance of (high-yield) bonds. The choice between (syndicated) loans/ unitranche facilities and bonds often depends on factors such as the issuer’s preferences, mar- ket conditions, and the desired level of flexibil- ity or liquidity. Borrowers tend to choose loans or unitranche facilities over debt securities, up to a certain size (in terms of debt quantum), as those facilities generally provide for more bespoke terms, quicker execution and no dis- closure of information to the public. On the other hand, bonds provide access to a broader pool of investors through the capital markets and can be traded on secondary markets, providing more liquidity for investors compared to syndicated loans. 3.5 Private Placements/Loan Notes The features of private placements and/or loan notes can be attractive for companies and spon- sors to raise capital to fund the acquisition of a target company or finance other corporate activ- ities, such as refinancing existing debt, funding capital expenditures or supporting growth ini- tiatives. Similar to bonds, these products can be utilised alongside a bridge facility and other types of debt. As costs of debt products offered by regulated entities, such as commercial banks, have been fluctuating, private placements and loan notes can be a safer choice as they often have a fixed
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