AUSTRIA Law and Practice

Contributed by: Markus Fellner, Florian Kranebitter and Mario Burger, Fellner Wratzfeld & Partners

advantage in an environment that predominately relies on bank financing.

For some transactions, the issuance of high-yield bonds may also be a financing option. However, given the usual volume of acquisitions in Austria, high-yield bonds are of minor importance.

3.5 Private Placements/Loan Notes

A private placement means the non-public issuance of assets (in particular shares and bonds). The purchasers are pre-selected investors and institutions rather than publicly on the open market. Usually, a longer business relationship already exists between the issuer and the purchaser. A private placement is an alternative to an initial public offer (IPO) for a company seeking to raise capital. Private placements have become a common way for start-ups to raise financing, particularly those in the internet and financial technology sectors.

With regard to private placements, a distinction is made between self-emission (Selbstemission), where the issuer places its securities with the investors itself, and external-emission (Fremdemission), where the issuer makes use of an issuing bank for the issuance.

Under certain circumstances, a private placement omits various administrative expenses as well as information and prospectus obligations that are mandatory for a public placement. For this reason, assets can often not only be sold much more quickly by way of a private placement, but – due to the lower costs – higher returns can also be achieved. By additionally agreeing on subscription options (warrants), which allow shares to be purchased at a later date at a pre-determined price, further profit options can be achieved while virtually excluding risks.

The risks associated with private placements arise in particular from the contractual arrangements. In contrast to public placements, the contract does not have to meet any minimum legal standards and is not subject to governmental review. For this reason, the individual contractual clauses should be subjected to a detailed examination. In particular, the information memorandum often drawn up and used as a basis for the sale also entails a liability risk.

Generally, private placements are far less common in Europe than in the USA and play a minor role in Austria.

Loan notes (Schuldscheine) have become more popular among corporate borrowers in the recent years to cover financing needs. From a legal perspective, loan notes are loans and not securities and cannot be traded on an exchange. Loan notes are usually governed by German law. However, also loan notes do not play a significant role in Austrian acquisition financings/ LBOs/MBOs.

3.6 Asset-Based Financing

Beside real estate financing and securitisations, asset-based financing is not very common in Austria.

Particularly due to the real estate boom in Austria’s major cities, asset-based financing has increased significantly over the past few years. Financing is often made with a floating volume against a fluctuating asset pool.

The loan market for real estate financing is dominated by domestic and German mortgage lenders. These mortgage lenders may issue bonds.

In addition to real estate transactions, financing of renewable energy and natural gas assets