TAIWAN Law and Practice Contributed by: Sarah Wu, Lee & Li Attorneys-at-Law
3.6 Asset-Based Financing Asset-based financing is commonly used by corporates to obtain facilities based on the pro- vision of security over certain real property and movable assets, which typically include aircraft, vessels and so on. See 5.1 Types of Security Commonly Used for further information.
event of default and enforcement and distribu- tion clauses. 4.2 Bank/Bond Deals Corporate bond investors are rarely seen as par- ties to an intercreditor agreement, and it is unu- sual for such investors to receive any security to rank pari passu with the senior creditors under an acquisition financing. 4.3 Role of Hedge Counterparties As Taiwan has foreign exchange controls, where an acquisition deal requires payment in New Tai- wan dollars but a large portion of the funds (eg, equity injection by foreign shareholders) is in foreign currencies, the borrower would need to hedge the exchange rate fluctuations in addition to the interest rate risk. As a result, the hedge counterparty will usually be one of the secured lenders and will sign the intercreditor agreement to rank at least pari passu with the other senior creditors. 5. Security 5.1 Types of Security Commonly Used Under Taiwan law, there are no “all-asset lien” , “floating lien” or “general security” concepts with respect to security provision. The security provider and the security interest holder must enter into an agreement to identify the specific asset over which the parties contemplate creat- ing the security. In addition, regulatory approval is generally not required for the security inter- est creation, except for certain types subject to the registration requirements, including security over shares, the real estate mortgage, chattel mortgage and pledge over intellectual proper- ties. The types of security used in Taiwan are explained below.
4. Intercreditor Agreements 4.1 Typical Elements
The elements of intercreditor agreements vary between local and international financing deals. Where acquisition financing is led by (and most of the participants are) local banks, an intercredi- tor agreement is rarely required, as the syndi- cated loan structure is relatively simple com- pared to international deals. Usually, there are only senior lenders with the same ranking, and a subordination undertaking would only need to be issued by the shareholder of the borrower, if any. That said, in some cases local lenders may still form an intercreditor agreement to set out the ranking of the creditors. However, the elements of the agreement are mostly straight- forward and include whether the debt obligation is joint and several, the rights and obligations of the syndicate members, and the enforcement and distribution arrangements. On the other hand, where an acquisition financ- ing is led by an international bank or the financ- ing agreement is governed by foreign law, the structure of the intercreditor agreement would be similar to those commonly seen in other juris- dictions as well as international practice, and the terms would include the ranking and priority, senior secured creditor liabilities, junior debts, hedge counterparties and hedging liabilities, an
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