NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
There is no established high-yield bond market in New Zealand. 3.5 Private Placements/Loan Notes Similar to the position noted in 3.4 Bonds/High- Yield Bonds , there is no established private placement/loan note market in New Zealand in the context of acquisition financings. Large- cap corporate issuers (typically in the property, energy or infrastructure sectors) often access overseas private placement/institutional term markets but this type of debt is rarely used to fund an acquisition. 3.6 Asset-Based Financing All of New Zealand’s major domestic banks pro- vide asset-based financing solutions. The legal framework around taking security (see 5 Secu- rity ) makes this straightforward. Asset-based financing is very common in the rural sector. A growing trend of borrowing base/receivables backed facilities being implemented by corpo- rates or portfolio companies with large trade receivable balances is also being seen. There have also been a number of recent large acquisitions (in the leasing or commercial lend- ing space) which have been financed by securiti- sation structures that have funded the comple- tion of the acquisition.
There is no standard market intercreditor agree- ment in New Zealand, although the principles and structure will generally follow the Loan Mar- ket Association’s form of intercreditor agree- ments. Order of Priority The ranking and order of priority of all financ- ing creditors will be set out in the intercreditor agreement, with contractual subordination being recognised under New Zealand law. Senior debt will rank ahead of junior debt and there may be “super-senior” debt that ranks ahead of the sen - ior debt on enforcement (eg, where a bank pro- vides a revolving credit facility on a super-senior basis in a unitranche transaction). Hedge coun- terparties and ancillary finance providers usually rank pari passu with the senior debt providers. Payments The intercreditor agreement will govern what payments are permitted to be paid to, and received by, each class of creditor. Payments to senior creditors are usually not restricted. Junior creditors, on the other hand, are often restricted from receiving principal repayments until all sen- ior debt has been repaid or, alternatively, these payments will be subject to strict parameters. Payments of interest and fees to junior creditors are usually permitted, subject to certain condi- tions, such as compliance with certain covenant levels and no default occurring. Repayments of shareholder loans are typically restricted on the same basis as distributions out of the borrowing group in the finance documents. Provisions are also typically included to require a creditor to turn over receipts to the agent or security trustee where they have received more than they are contractually entitled to and to hold these receipts on trust for the agent/security trustee until they have done so.
4. Intercreditor Agreements 4.1 Typical Elements
Intercreditor agreements are common in the New Zealand market and are used to contrac- tually govern the rights and obligations of the various financing creditors of a borrowing group.
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