NETHERLANDS Law and Practice Contributed by: Folko de Vries, Ilse van Gasteren, Robert Smits and Stern Flik, Clifford Chance
External Factors Documentary terms for private credit transac - tions are not typically Dutch-specific and the drafting of private credit documentation in the Netherlands therefore changes with the interna - tional market. 3.3 Restrictions on Foreign Direct Lenders There are no specific restrictions on foreign lend - ers in respect of providing private credit or taking security, other than as set out in 2. Regulatory Environment and 4. Tax Considerations . It is worth noting that the vast majority of private credit providers which are active in the Nether - lands are not Dutch entities. 3.4 Use of Proceeds and Acquisition Financings There are no specific Dutch law restrictions on the use of proceeds from private credit transac - tions by a borrower. The drawdown period for private credit facilities will typically be longer than the drawdown period for bank financing, so that has to be taken into account from a tim - ing perspective. 3.5 Debt Buyback Whether debt buybacks by the borrower or sponsor are permitted will depend on the requirements of the private credit provider and sponsor precedent. A number of private credit providers require that the documentation does not permit debt buybacks. In any event, if debt buybacks are permitted, the documentation would cater for appropriate disenfranchisement. 3.6 Recent Legal and Commercial Developments There are no recent legal or commercial devel - opments that have required major changes to
legal documentation for private credit transac - tions. 3.7 Junior and Hybrid Capital Please see 1.5 Junior and Hybrid Capital . 3.8 Payment in Kind/Amortisation Payment in Kind Typical senior term debt will often cater for a PIK toggle allowing the borrower to capitalise interest or part of the interest for a period of time (which may or may not be limited), either at a premium or not. Amortisation There are no Dutch law reasons for a private credit provider to require amortisation. Transac - tion documentation may cater for the ability to incur incremental debt in certain currencies with de minimis amortisation. 3.9 Call Protection It is typical in the Netherlands for senior term debt (initial term debt and delayed draw facilities) to benefit from call protection for a period of one to two years, with different mechanisms, includ - ing make-whole provisions and fees expressed as a percentage of the amount prepaid. There are no specific concerns with call protection pro - visions as a matter of Dutch law.
4. Tax Considerations 4.1 Withholding Tax
As a general rule, the Netherlands does not impose withholding tax on payments of princi - pal, interest and other (debt financing-related) payments, provided that such payments are made on instruments qualifying as debt for Dutch tax purposes and are made between unaffiliated parties on bona fide arm’s length
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