AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
Unlike for banks, there are no further local prac - tical challenges for private credit providers in respect of take-privates and other acquisition financings. 3.5 Debt Buyback Australia follows APLMA standard on debt buy- backs. Where a debt buy-back is permitted, the borrower/sponsor is typically excluded from vot - ing on its debt position. 3.6 Recent Legal and Commercial Developments With the increased prevalence in the US and Europe of “liability management exercises”, we are seeing various “blockers” included in Aus - tralian documentation to limit the ability of bor - rowers to, for example, take on additional debt, dispose of assets, or delay maturity on existing debts. There have been very few liability man - agement exercises in Australia to date. 3.7 Junior and Hybrid Capital Junior/hybrid capital is increasingly common in Australia. Common structures include the fol - lowing. • “Opco” mezzanine debt debt advanced to the same Opco as the senior debt, which is con - tractually subordinated to senior debt through an intercreditor arrangement. This structure is common in real estate finance, but has become less common in leveraged finance. • “Holdco” mezzanine financing debt advanced to a HoldCo entity, with security often limited to the Holdco’s interest in the Opco. This debt is structurally subordinate to senior debt, usually avoiding the need to negotiate con - tractual subordination arrangements with the senior debt providers. • Convertible notes these provide debt-like features with the option to convert into equity
upon certain trigger events. While this has traditionally been utilised in “growth-stage” businesses, there has been increased traction in recent months amongst both listed and unlisted companies for this sort of financing. Compared to senior secured deals, the struc - turing and documentation is varied, with some differences prevalent in the covenant and repay - ment structures, the rate of interest adopted, and the collateral provided. 3.8 Payment in Kind/Amortisation While payment in kind (PIK) debt is common in Holdco mezzanine structures, the past cou - ple of years has seen an increased number of unitranche financings with PIK-toggle features being offered to borrowers/sponsors. There has been an increased trend towards lim - ited or no amortisation on private credit deals. 3.9 Call Protection Like in other private credit markets, call protec - tions (of varying scope) are included on Aus - tralian deals, with a trend towards borrowers/ sponsors with strong market power limiting the premiums payable, the applicable time peri - ods, and the conditions giving rise to payment through carve-outs and discounts.
4. Tax Considerations 4.1 Withholding Tax
In evaluating private credit opportunities, pro - spective lenders should be cognisant of Aus - tralia’s interest withholding tax (IWT) regime. In certain circumstances, Australia imposes 10% withholding tax on payments of interest as well as amounts in the nature of interest and other
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