AUSTRIA Law and Practice

Contributed by: Markus Fellner, Florian Kranebitter and Mario Burger, Fellner Wratzfeld & Partners basis (as opposed to the bank/bond financings in the case of LBOs where the loan element is in most cases senior to the bonds) and, as a consequence, voting arrangements between bank lenders and bondholders have been discussed in depth and “one dollar, one vote” has become the commonly chosen structure.

4.3 Role of Hedge Counterparties

In intercreditor agreements, hedge counterparties do not usually play a significant role. Typically, there are no provisions between creditors in this respect. Interest hedging is often provided by the lenders themselves.

5. Security

5.1 Types of Security Commonly Used Security Overview

In Austria, there are two general groups of collateral that may be used to secure lending obligations: personal collateral and in rem collateral.

The following types of personal collateral for securing lending obligations are the most common:

• assumption of debt;

• sureties;

• guarantees; and

• letters of comfort.

Most common types of in rem collateral are:

• pledge of assets (such as a pledge on movables or a mortgage);

• transfer of title for security purposes;

• assignment for security purposes; and

• retention of title.

In LBO structures, the usual form of security granted is share pledges. In addition, receivables, bank accounts, inventory, real estate as well as intellectual property rights are regularly pledged to the financing bank. There is no “one size fits all” approach, and collateral packages are carefully agreed on a case-by-case basis, taking into account the practical value of the collateral and the cost to create and administer it.

However, the most common type of security granted in the context of acquisition financing transactions is the pledge of shares in limited liability companies or joint stock companies.

Restriction can arise with regard to Austrian capital maintenance rules, which may prohibit the provision of “side-stream” or “upstream” collateral by group companies.

The infringement of these rules leads to the invalidity of the security, in some cases even towards the lenders.

Austrian Law Particularities

In Austria, the concept of a general security interest in all assets of the pledgee to the assignee does not exist. As a result of the various different perfection requirements for different types of collateral under Austrian law (eg, entry into the land register for mortgages, book entry for the assignment of claims as an alternative to the notification to the third-party debtors, the notification of the company when pledging shares in an Austrian limited liability company), but also for reasons of enhancing the enforceability of collateral even in case one category of collateral was not perfected or is not enforceable, it is a standard market practice to have a security agreement for each class.