SOUTH AFRICA Law and Practice Contributed by: Ulrike Naumann, Alison Mellon, Joshua Janks and Aneria Bouwer, Bowmans
in South Africa, such as payment-in-kind (PIK) notes or PIK loans, are sometimes governed by the laws of a different jurisdiction. In addition, transactions may involve a target company located in a different jurisdiction. The reason to involve South African counsel may be either that the purchaser is incorporated in South Africa or South African companies are providing security to financiers for the acquisition finance. In these instances, the financing arrangements are likely to be governed by the laws of the rel- evant jurisdiction. Only the security documents would be governed by the law of South Africa. Note that South African courts will generally uphold the choice of a foreign governing law for financing agreements (save in certain circum- stances such as illegality under South African law). 2.2 Use of Loan Market Association (LMA) Agreements or Other Standard Loans The LMA facilities agreements for the South Afri- can investment grade market, or simpler deriva- tions from these LMA documents, are often used in acquisition financing transactions, particularly if the lenders involved are banks or financial institutions. However, these are not guaranteed as the starting point for the facilities documen- tation and there are unique market standards for the terms of documents in the South African market. Aspects of the English law-governed LMA documents for a senior facility agreement for a leveraged acquisition finance are also use- ful to incorporate into South African documents. Private equity sponsors may request simpler loan documentation than the LMA documents or request to use their own versions of documents. There are no other standard form agreements
which apply to acquisition financing transac- tions. 2.3 Language There are no requirements relating to the lan- guage used in documentation. Despite there being 11 official languages in South Africa, doc- uments for acquisition finance transactions are drafted in English. 2.4 Opinions It is customary for the legal counsel for the lend- ers to provide a legal opinion on the validity and enforceability of the senior finance documents, and if a security SPV structure is used (see 5. Security , on the capacity and authority of the security SPV). Legal counsel for the borrower – being, usually, the target company or a newco in the target group – will provide a legal opinion on the capac- ity and authority of the borrower and any other obligors to enter into the finance documents and any acquisition transaction documents. The senior lenders may also require a legal opinion from the country counsel for the target group on the legality and enforceability of the acquisition transaction documents. Other legal opinions may include those provided by country counsel from other jurisdictions on the capacity and authority of obligors in that jurisdiction to enter into the finance documents and acquisition transaction documents, and the legality and enforceability of the applicable finance documents governed by the laws of that jurisdiction. The senior lenders may also require tax opinions on particular aspects of the trans- action such as the deductibility of interest paid on the senior facilities, depending on the trans- action structure.
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