AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
In some cases, equity kickers such as warrants or conversion rights are attached to mezzanine loans to compensate lenders for the higher risk, offering upside participation in the equity value of the business. 3.3 Bridge Loans Bank loan facilities are sometimes used as “bridges” to permanent debt security financings. “Bridge” loans are short-term with higher inter- est rates and quick access to funds. They serve to provide immediate financing until a long-term solution, such as issuing debt securities, can be arranged. In acquisition financing transac- tions, “bridge” loans are typically put in place to “bridge” potential gap between the announce- ment of an acquisition and the securing of per- manent financing by a company, particularly if the transaction timeline does not allow for full syndication of the loan before closing. “Bridge” loans are basically more flexible in repayment terms and often used in acquisitions, real estate transactions or project financing. Once debt securities are issued, the “bridge” loan is repaid with the proceeds of debt securi- ties, allowing borrowers to access longer-term financing with better terms. The interest rates of “bridge” loans depend on the credit rating and default risk of the borrower. However, the interest rates are higher than typi- cal rates in ordinary circumstances. Additionally, the “bridge” loan documentation often provides for interest rate increases or additional fees peri- odically across the term of the loan or in the case of extension. This incentivises the borrower to
structure and market standards, especially those of the UK and the US. The structure is designed to provide flexible capital to support acquisi- tions, often in LBO scenarios. Given the usually smaller volume of acquisitions in Austria, high-yield bonds are less important and are seen instead in international transac- tions involving Austrian companies in the bor- rower group. However, an important reason for bond financing in Austrian transactions is the strict Austrian banking licence regime. Commer- cial lending is considered a regulated activity in Austria and therefore requires a banking licence under the Austrian Banking Act ( Bankwesenge - setz or BWG). Licence requirements can be law- fully circumvented if, instead of granting a loan, bonds are issued by the borrower and acquired by the lender. The bond is typically not issued by the acquiring company directly, but through a non-operational bidco, a special purpose acquisition vehicle, or a non-operational holdco, which sits above the target in the group structure. They do not gen- erate their own revenue but rely on the target’s cash flow, usually via dividends, upstream loans or intercompany payments, to service the debt. The bonds themselves are usually structured as senior secured or senior unsecured notes, depending on the credit profile of the issuer and investor appetite. In more leveraged or higher- risk deals, subordinated notes or PIK notes are also used, especially to plug gaps in the capital structure where bank financing or senior debt is not available. In the case of senior secured bonds, the bondholders benefit from security interests. However, especially in cross-border deals or where multiple layers of financing exist (eg, bank loans), the bonds may be contractually
repay the loan as soon as possible. 3.4 Bonds/High-Yield Bonds
As in other jurisdictions, acquisition financing in Austria involving bonds follows international
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