AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
subordinated or structurally subordinated (if the issuer is a holdco and not the opco). High-yield bonds used in Austrian acquisition financing or international financing involving Austria are typically governed by New York or English law and come with customary incur- rence-based covenants, meaning that the com- pany has more operational flexibility compared to traditional bank debt. However, it also means they must meet certain conditions (like leverage ratios) before taking on more debt or paying divi- dends. Maturities usually range between five and eight years and the pricing reflects the higher risk, especially if the bonds are unsecured or subordinated. 3.5 Private Placements/Loan Notes In Austria, private placements and loan notes (promissory note loans or Schuldscheindarle- hen ) offer a flexible and cost-efficient alterna- tive to traditional bank lending or capital market instruments such as initial public offering (IPO) or bonds for a company seeking to raise capital, particularly for mid-sized and larger corporates looking to diversify their funding base. However, while frequently seen in the Austrian market in general, they do not play a significant role in Austrian acquisition financing transactions. These instruments are typically structured as bilateral or club-style loans and are privately placed with a limited number of institutional investors such as insurance companies, pension funds or specialised debt funds. The documen- tation is relatively lean compared to syndicated loans or public bonds, making private place- ments an attractive option for issuers seeking streamlined execution and discretion. The legal structure is usually based on loan agreements rather than securities, which means
they are not subject to capital markets regulation (eg, prospectus requirements), provided they are not publicly offered. For this reason, Schuld- scheindarlehen do not constitute tradeable securities under Austrian law, although they may still be transferable under certain conditions. In terms of the borrower capital structure, loan notes are typically issued at the opco level, backed by the group’s creditworthiness. How- ever, larger groups may also issue them through a finance subsidiary or holdco, particularly if tax or corporate structuring requires flexibility. Most Austrian private placements are unsecured, although negative pledge and pari passu claus- es are common to protect investors from future secured borrowings that could dilute their posi- tion. In some cases, particularly where credit risk is higher, investors may request limited security or covenant protections. Loan notes may carry either fixed or floating interest rates, with maturities typically ranging from three to ten years. They are usually gov- erned by German law, but can be governed by Austrian law, depending on the issuer’s prefer- ence and investor base. However, international private placements may be done under English law as well. 3.6 Asset-Based Financing In Austria, asset-based financing is uncommon for acquisitions, but is often used to complement traditional bank loans or bonds, particularly in deals involving companies with strong work- ing capital assets like receivables, inventory or machinery. The financing is typically set up at the opco level, rather than at the holdco or acquisition vehicle level. Lenders provide revolving credit lines or term loans secured against specific assets. The
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