NETHERLANDS Law and Practice Contributed by: Gianluca Kreuze, Ruben den Hollander, Anne van Geen and Sanne van Esterik, Loyens & Loeff
5. Security 5.1 Types of Security Commonly Used Types of Assets and Security The typical security package in connection with acquisition financing in the Netherlands com- prises all asset security, consisting of shares, real estate, moveable assets, receivables (eg, insurance and intercompany receivables), (cash deposited in) bank accounts and IP rights. In principle, both present and future assets can serve as collateral. A security right over future assets can be granted but will not catch any assets which are acquired or which come into existence after the security provider has been granted a suspension of payments or has been declared bankrupt. In deals where a strong borrower (sponsor) is involved, collateral is often limited to shares, material intercompany receivables and material bank accounts of the material companies only. The security package is typically implemented as follows: • on closing: shares and assets of the bidco (purchasing entity); and • post-closing (upon accession of the target group): shares and assets of the target and material subsidiaries. 5.2 Form Requirements Secured Liabilities Dutch law security can only secure monetary payment liabilities. Security rights are acces- sory rights that follow the claims they secure by operation of law, meaning that they cannot be transferred or assigned independent from the secured liabilities. See also the information on parallel debt (below).
4.2 Bank/Bond Deals Where both banks and bondholders are involved in an acquisition financing transaction, the LMA intercreditor agreement is typically used as a starting point for negotiations. The LMA intercreditor agreement provides a standard- ised framework for managing the relationship between different classes of creditors in lev- eraged finance transactions, including banks and bondholders. The approach taken towards intercreditor agreements in bank/bond deals is in itself not very different from any other transac- tion where multiple layers of debt are involved. 4.3 Role of Hedge Counterparties Lenders regularly require borrowers to enter into hedging in respect of a minimum proportion of its term facilities in order to mitigate interest or exchange rate fluctuations and enhance the sta- bility and predictability of cash flows of the tar- get group. As the borrower may incur significant payment obligations to the hedge counterpar- ties, the lenders want the hedge counterparties to become a party to the intercreditor agreement to ensure that the ranking and priority of any hedging liabilities in relation to the other lend- ers are regulated. The hedge counterparties in their turn want to benefit from the guarantees and security granted by the borrower. Hedging counterparties in principal rank before or pari passu with the senior lenders and share in the security package. A hedge counterparty gen- erally only gets a vote on enforcement actions after a termination or close-out of a hedging transaction has occurred and the resulting set- tlement amount is due and has not been paid. As a result, a hedge counterparty has very limited control on the enforcement strategy as long as it is continued to be paid.
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