AUSTRIA Law and Practice

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

plays a more important role in the market. Assetbased financing transactions are regularly fully collateralised and have no recourse elements. Furthermore, an increase in securitisation transaction has been recorded in Austria, as this is a suitable way for many banks to clean up their balance sheets.

4. Intercreditor Agreements

4.1 Typical Elements

Agreements between creditor groups, so-called intercreditor agreements, are a common and widespread instrument in corporate financings. An intercreditor agreement typically regulates the ranking relationship between these creditor groups in the distribution of payments and enforcement proceeds from joint collateral.

If there are multi-layered financing instruments (senior loans, second lien, mezzanine, high-yield bonds), it is common to have intercreditor agreements.

Intercreditor agreements are usually governed by the law governing the underlying finance documents. The binding force of an intercreditor agreement in case of insolvency proceedings is a fundamental issue.

Contractual Subordination

In the case of lender classes, contractual subordination is very common in international acquisitions or between junior and senior lenders. Austrian statutory or case law does not set out whether it is effective or not. However, for insolvency proceedings, a contractual subordination pursuant to an intercreditor agreement may be effective, if it does not result in any disadvantages for the other lenders.

Structural Subordination

Structural subordination is regularly used if, eg, different classes in relation to hybrid agreements exist.

Subordination of Equity/Quasi-equity

Please see Contractual Subordination above.

Sharing Agreements

Provisions providing for the sharing of security are typically found in intercreditor agreements. Attention has to be paid as to whether the security constitutes an accessory (akzessorisch) security interest which is dependent on the secured obligation. Accordingly, accessory security interests granted under Austrian law can only be validly granted to and maintained for the benefit of the creditor of the secured obligation. Thus, in most cases a separate parallel debt structure is established in the intercreditor agreement, which is not governed by Austrian law and under which a security agent is the holder of the parallel debt owed by each debtor.

Thus, an additional feature of intercreditor agreements that has developed in the market and which is worth noting is that not only is the security in rem governed by the rules of the intercreditor agreements but also guarantees:

• to ensure equal satisfaction of all secured creditors; and

• to prevent the enforcement of guarantees, in particular by single bondholders, from interfering with an orderly workout and giving them a holdout potential.

4.2 Bank/Bond Deals

If companies fall into financial difficulties and have to rearrange their debt financing through secured loans and secured bonds, it is common that loans and bonds are secured on a pari passu