SOUTH AFRICA Law and Practice Contributed by: Ulrike Naumann, Alison Mellon, Joshua Janks and Aneria Bouwer, Bowmans
tor more than what that creditor is contractually entitled to receive according to the intercredi- tor agreement. The intercreditor agreement will also usually govern the appointment, powers and resignation of the administrative or facility agent for the acquisition finance transaction. 4.2 Bank/Bond Deals High-yield bonds are not generally used in acquisition transactions in South Africa. To the extent that they are used, the structure generally follows that of the New York law-governed high- yield bond documentation. 4.3 Role of Hedge Counterparties Hedge counterparties are typically party to the intercreditor agreement. A hedge counterparty is restricted from several actions in the intercredi- tor agreement, such as closing out any hedg- ing arrangements prior to the scheduled date or receiving payment of any amounts prior to a scheduled date. The intercreditor agreement also governs the rights and powers of a hedg- ing counterparty once a default has occurred or security is enforced. A hedging counterparty only participates in the making of certain limited decisions that primarily relate to amendments or waivers to the intercreditor agreement. Impor- tantly, a hedge counterparty does not normal- ly participate in decisions regarding events of default and enforcement of security. 5. Security 5.1 Types of Security Commonly Used In South Africa, acquisition finance transactions will typically be both guaranteed and secured. It is possible that certain investment grade acqui- sition finance may be provided on a guaranteed but unsecured basis. Generally, security will be taken over any and all assets of the target group,
provided that it is legally permissible, practical and cost-effective to do so. The security to be provided will be set out in the term sheet agreed between the parties. Security can be taken over assets in a variety of ways in South Africa. In acquisition finance transactions with multiple lenders, security SPVs are commonly used to structure security pro- vided by obligors. One of the reasons for the popularity of the security SPV structure is that it is uncertain in South African law as to whether security can be created in favour of a security trustee acting as trustee for a group of lenders. The security SPV structure involves the estab- lishment of a newly incorporated company as a security SPV. The shares in the security SPV are held by an independently administered trust. The security SPV issues a guarantee in favour of the finance parties in respect of the obliga- tions of the borrower (and other obligors) under the finance documents. The obligors provide an indemnity and security in respect of their obliga- tions under the indemnity to the security SPV. Secured acquisition finance transactions could involve security being given over a variety of assets. The manner in which security is taken over the assets of a company depend on the nature of each asset. Under South African law, there is no single method pursuant to which security can be taken over all assets simulta- neously. The following explanations highlight common types of security given in acquisition finance transactions, according to the nature of asset over which security is to be given. Security Over Immovable Property Security may be given over immovable property, which is a broad concept under South African
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