AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
most common are receivables-based facilities (like factoring or invoice discounting), invento- ry-backed loans and equipment or real estate- backed loans. These structures are particularly useful in industrial, retail or logistics acquisitions, where the company’s asset base is strong but earn- ings before interest, taxes, depreciation and amortisation (EBITDA) may not support large amounts of traditional debt. The asset-based financing lender relies on the value and quality of the assets, not the company’s profitability and typically requires tight control, including asset reporting and security over accounts, stock and contracts. While asset-based financing structures are flex- ible, they must also navigate Austrian-specific legal issues, particularly with regard to security perfection and strict capital maintenance rules. In acquisition finance transactions, intercreditor agreements play a crucial role in defining the relationship between different creditor classes, particularly where senior, mezzanine and junior debt is granted. The intercreditor agreement ensures a clear hierarchy of rights and remedies, especially in distressed scenarios. The central features of an intercreditor agree- ment are: • the ranking of debt and payment waterfall: the agreement sets out the priority of claims, ensuring that senior lenders are paid first, followed by mezzanine and then junior credi- tors. If a junior lender receives payment in 4. Intercreditor Agreements 4.1 Typical Elements
breach of this ranking, turnover provisions typically require them to pass those funds on to the senior creditors. In the event of insol- vency, senior creditors usually take the lead in managing proceedings. The intercreditor agreement also deals with procedural matters like claim filings and the treatment of post- insolvency interest; • enforcement rights: junior creditors usually agree to a standstill period, during which they cannot take enforcement action, giving senior lenders time to recover their claims first. Control over enforcement is typically in the hands of senior lenders, who may also have step-in rights to direct proceedings initiated by others; • subordination is addressed both structurally and contractually. In many cases, mezza- nine lenders are structurally subordinated by lending at the holdco level, while contrac- tual subordination ensures they rank behind senior debt in terms of payment and security enforcement; • role of the security agent: security interests are generally held by a common security agent for the benefit of all lenders. The inter- creditor agreement outlines how enforcement proceeds are shared and under what condi- tions security may be released, particularly in restructurings; • transfer restrictions: they may prevent jun- ior debt from being sold to competitors or opportunistic distressed investors and set rules for sponsor-led debt buybacks; and • voting and amendment rights are typically tiered, with senior lenders often holding veto power over key decisions, especially those affecting their priority or security. Thresholds for majority decisions are clearly defined to ensure co-ordination among creditors.
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