NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
Enforcement The intercreditor agreement will set out which group of creditors is entitled to instruct the secu- rity trustee to take enforcement action follow- ing a default event, which is usually a specified majority of senior creditors (typically two-thirds by exposure). Junior creditors will be restricted from taking enforcement action during an agreed standstill period. If the senior creditors fail to take enforcement action during this period, the junior creditors will be permitted to step in and under- take their own enforcement process, subject to certain conditions and time periods being met. 4.2 Bank/Bond Deals As outlined in 3.4 Bonds/High-Yield Bonds , there is no high-yield bond market in New Zea- land. However, it is relatively common for invest- ment grade corporate issuers to have a bond or private placement as part of their debt capital structure. In these circumstances, the instru- ment will usually rank pari passu with the cor- porate issuer’s senior bank debt. 4.3 Role of Hedge Counterparties Where a borrowing group has hedging in place (which is common), hedge counterparties will typically benefit from any security and will rank pari passu alongside the senior lenders. The hedge counterparties’ rights to terminate hedging transactions or otherwise take enforce- ment action may be restricted and will often be governed by an intercreditor agreement. 5. Security 5.1 Types of Security Commonly Used Leveraged acquisition finance transactions will almost always be secured.
The security package will be dependent on the acquisition but will typically involve the following. • On or prior to closing: (a) all-asset security being granted by the special purpose vehicle bidco; and (b) specific security being granted by the special purpose vehicle holding company of the special purpose vehicle bidco over the shares in the bidco, any intercompany receivables owing to the special purpose vehicle holding company by the bidco and any bank account of the special pur- pose vehicle holding company. • Within a certain period after closing, all-asset security being granted by the target and other target group entities to the extent required to comply with the guarantor coverage test. A guarantor coverage test will typically require that, subject to any agreed security principles, members of the target group owning between 80% and 95% of the target group’s assets and contributing between 80% and 95% of the target group’s earnings before interest, taxes, depreciation and amortisation (EBITDA) must grant all-asset security and become guarantors. For corporate transactions, on or prior to com- pletion of the acquisition, the security package will typically reflect the purchaser’s existing security arrangements (if the purchaser is using headroom in its existing financing arrange- ments, no new security will be required). Post- closing, whether members of the target group are required to grant security and the nature of that security will vary on a deal-by-deal basis, as some strong corporate borrowers borrow on an unsecured/negative pledge basis. Where security is provided, it is common for a guarantor coverage test to be included, as for leveraged transactions.
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