NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
consistent with the transaction opinions issued by lawyers in other common law jurisdictions.
multiple layers of debt. This additional flexibility results in wider pricing. Covenant-lite transactions in the style of term loan Bs are less common in New Zealand. To date, they have only been used on a very small number of large transactions, usually with US sponsors. Given there are now more covenant- lite transactions in Australia, more of these types of transactions can be expected to be seen in New Zealand in the coming years. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Mezzanine/PIK loans (contractual and Holdco) exist in the New Zealand market but are less common in acquisition financing. The mezza- nine/PIK market is expected to grow over the next 24 months, particularly in capital restructur- ing and refinancing transactions. 3.3 Bridge Loans Bridge loans are uncommon in the New Zealand leveraged market due to there being no estab- lished high-yield bond market in New Zealand. There is a strong domestic market for invest- ment grade corporate bonds and, accordingly, corporate purchasers may enter into a bridge financing to complete an acquisition and then refinance the bridge with a bond issuance (typi- cally, to wholesale and retail investors) or a capi- tal raise. 3.4 Bonds/High-Yield Bonds While there is an active debt capital market for corporate issuers in New Zealand, this market is rarely used as the primary source of funding for an acquisition (although a bond issuance may be used to refinance an acquisition bridge loan, see 3.3 Bridge Loans ).
3. Structures 3.1 Senior Loans
The structure of an acquisition financing in New Zealand will vary from transaction to transac- tion, depending on whether it is a corporate or leveraged transaction, the relevant sector, the purchaser and the target (among other things). Corporate acquisitions could be as simple as utilising headroom in the purchaser’s exist- ing financing arrangements or amending its financing arrangements to include an additional certain-funds acquisition facility, although new acquisition financing arrangements are common too. Leveraged buyouts tend to be more complex and may involve different facilities/tranches, such as a term loan acquisition facility (usually with some amortisation if the structure is a traditional bank-led deal), a term loan capex facility, a term loan acquisition facility/incremental facility (eg, for bolt-on acquisitions) and a revolving credit facility, as well as different layers of debt (see 3.2 Mezzanine/Payment-in-Kind (PIK) Loans ). With the growing trend of direct lenders/private credit (both international and domestic) in the New Zealand market, European-style unitranche deals are becoming more common in acquisition financing. Under these structures, the acquisi- tion facility (provided by the direct lender) is non- amortising and is coupled with a super-senior revolving facility (usually provided by a domestic bank lender). Unitranche lenders tend to offer greater leverage than available under traditional bank-led transactions, foregoing the need for
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