AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
4.3 Role of Hedge Counterparties In Austrian acquisition finance transactions, hedge counterparties are relevant to manage interest rate and currency risks, particularly when loans have floating interest rates or involve cross-border transactions. Their role in intercred- itor agreements is typically focused on ensuring that hedging arrangements are respected and that any payments or collateral related to hedg- ing do not conflict with the senior debt. Hedge counterparties’ claims for payment (eg, from interest rate swaps or foreign exchange contracts) are usually subordinated to the senior debt, but they may have certain rights, such as access to collateral in the event of default. 5. Security 5.1 Types of Security Commonly Used There are two general types of security provided in Austrian acquisition finance transactions: in rem security and personal security. In Rem Security Austrian law does not permit the generic grant- ing of a security interest in all the assets, includ- ing all future assets, of a borrower or third-party security provider. Individual security interests may only be granted with respect to a specific asset, which must already exist or at least be determinable at the time the security is granted. The degree of specificity varies according to the type of asset and is generally very strict (eg, the precise type, value and location of assets and the precise date, parties and subject matter of contracts is required). There is no standard approach to providing security in an Austrian loan transaction. The usual Austrian security package for loan trans-
While intercreditor agreements are often gov- erned by English law, particularly if international lenders are involved, Austrian law may apply in purely domestic transactions. 4.2 Bank/Bond Deals Bank/bond deals combine both senior bank loans and bonds to provide the financing for the acquisition. This structure offers the borrow- ers flexibility, allowing them to tap into different sources of capital while balancing risk and cost. Bank/bond deals are not often seen in Austria Mainly because of the size of the market. One recent example was the acquisition financing of ams AG to take over OSRAM. The bank loans, usually provided through a syndicated facility, are secured debt that typi- cally include a term loan for the acquisition and a revolving credit facility for working capital. These loans are generally shorter in duration (five to seven years) and have a floating inter- est rate. The senior bank debt is prioritised and secured by a range of assets like share pledges and receivables. Bonds, on the other hand, are used to provide long-term, unsecured financing. They typically have longer maturities (seven to ten years) and offer a fixed interest rate. Bonds can either be high-yield or investment grade, depending on the risk profile of the transaction. The bonds are subordinated to the senior loans, meaning the bank lenders have priority in case of a default. This combination of senior debt and bonds allows the borrower to optimise capital costs. The senior loans offer lower interest rates due to their secured nature, while the bonds provide long-term stability, albeit at a higher cost.
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