HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
Investments in the form of junior debt may be in the form of holdco loans without any direct credit support from the underlying assets or business such that intercreditor arrangements with underlying senior debt tranches are not always required. Most private credit transactions are term loan facilities and may be delayed draw depending on the circumstances. Revolving credit facili - ties are not generally seen to be provided by private credit funds, although the authors have come across structures which enable capital to be recycled under certain circumstances. These will not be typical working capital style revolving credit facilities. 3.2 Key Documentation The key documentation involved in a private credit transaction is similar to that of a bank loan. For example, in the case of a senior secured transaction, there will be a facility agreement which incorporates any guarantees to be pro - vided (sometimes there will be a separate local law governed guarantee), the form of security documents will vary depending on the nature, type and location of the underlying collateral and any contractual subordination arrangements will take the form of an intercreditor or subordination agreement. In the Asia context, where recourse to individual founders or “promoters” may be considered important to the credit, personal guarantees are often sought. Where an important component of the structure is the establishment and operation of controlled bank accounts, there will often be account bank agreements with third-party service providers (typically the agency business of a commercial bank or an independent service provider).
“First-out, last-out” or other transactions which require an agreement among lenders are not very common in Asia, but have featured in invest - ments in Australia where unitranche structures are more common. As noted above, the structuring of private credit investments in Asia will be heavily influenced by local laws and regulations and this will inevitably affect the documentary terms. Within the direct lending context where private credit is being pro - vided to financial sponsors to finance an acquisi - tion, the latest market terms on leveraged and acquisition financings can be expected to influ - ence terms. The Asia market tends to be more conservative in this space than the US or UK/ Europe, but global sponsors in particular con - tinue to seek equivalent terms wherever they invest in the world. 3.3 Restrictions on Foreign Direct Lenders No, foreign lenders are not restricted in any way from providing private credit or taking security. 3.4 Use of Proceeds and Acquisition Financings There are no restrictions on the borrower’s use of proceeds from private credit transactions. The authors are not aware of any take-private financings in Hong Kong being provided by a private credit fund, so it remains to be seen whether financial advisers will seek to conduct due diligence on such funds in the certain funds context in the same way as they would for the equity component being provided by a private equity sponsor bidder. There are no particular challenges applicable to a private credit fund specifically (versus, for example, a bank lender) in providing acquisition financing on a private M&A.
144 CHAMBERS.COM
Powered by FlippingBook