Debt commitment letters and acquisition agreements

Types of documentation

What documentation is typically used in your jurisdiction for acquisition financing? Are short-form or long-form debt commitment letters used and when is full documentation required?

Austrian banks usually provide debt financing based on their own standardised credit agreements in conjunction with their general terms and conditions. This may be considered short form. In transactions that involve international banks, including those in which Austrian banks participate by way of syndication, the documentation is usually structured in accordance with the standards provided by the Loan Markets Association and entail a fully negotiated and executed credit agreement. This may be considered long form.

Level of commitment

What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?

In Austria, the levels of commitment given by parties in debt commitment letters and acquisition agreements can vary from one transaction to another and will typically depend on the structure of the contemplated acquisition. Equity commitment letters, hard letters of comfort or a bank (or parent) guarantee are typical instruments which grant the beneficiary an enforceable right against the issuer. Soft letters of comfort, on the other hand, do not grant the beneficiary an enforceable right against its issuer.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

The conditions precedent to funding contained in commitment letters may vary from one transaction to another. Usually, the conditions precedent to funding include:

  • the approval of certain regulatory bodies (eg, the Competition Commission for merger control or the Financial Market Authority in case of financial institutions);
  • the necessary corporate or other third-party consents;
  • certain other corporate formalities for all obligors (borrowers and guarantors);
  • the execution of the acquisition and finance documents (including any additional security agreements);
  • due diligence reports;
  • the submission of certain financial information;
  • the payment of the fees and expenses;
  • the legal capacity and enforceability opinions; and
  • the completion of an agreed restructuring process.

In some instances, the above conditions further encompass the absence of material adverse changes between the time of signing and closing, and the waiver of contractual termination rights stemming from change of control clauses.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

Although Austrian law does not explicitly prohibit flex provisions, the Austrian courts have repeatedly held that a contractual right which entitles the economically stronger party to unilaterally change the agreement grossly disadvantages the other (economically weaker) party to the contract and is therefore void. In cases where the contractual partners can be considered economically equal, flex provisions should at least be valid to some extent. However, in light of the prevailing case law, such rights may only be exercised with reasonable discretion. As regards, for example, the contractual right to subsequent interest adjustment, the Austrian courts have upheld the respective agreement, but emphasised that the right must be exercised with reasonable discretion.

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

Securities demands are not a common feature in acquisition financing in Austria. However, in some instances the transaction documents may grant the lenders a right to demand the issuance of securities from the borrower.

Key terms for lenders

What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?

The representations and warranties given by the seller, the closing and transfer procedures, certain syndication covenants (pooling of voting rights) as well as certain option rights are the key elements of acquisition agreements in Austria.

Lenders are afforded protection against liability by way of contractual representations and warranties. In practice, parties to acquisition agreements typically deviate from statutory warranty rules and agree on an exhaustive catalogue of assurances for which the target company or its shareholders will be liable and must indemnify the lender. The representations and warranties can either be designed as independent guarantees pursuant to Section 880a of the General Civil Code or ordinary representations and warranties pursuant to Sections 922 et seq of the code. Depending on the strength of the respective parties’ bargaining positions and the industry sector concerned, these catalogues may vary greatly from one transaction to another.

Assurances that can be regularly found in acquisition agreements concern:

  • corporate matters regarding the target (eg, it must be duly incorporated, the existing shares must represent 100% of its registered share capital, all necessary corporate authorisations must exist and there must be no profit and loss pooling, domination, silent partnership or similar agreements);
  • the seller’s ownership of the shares (valid chain of title);
  • freedom of the shares from any encumbrances (including, but not limited to pre-emption rights);
  • the assets, liabilities and financial affairs of the target;
  • employment issues, including social security;
  • IP rights, real estate and taxes;
  • the correctness and completeness of the disclosed information; and
  • pending or threatened disputes or other administrative or arbitral proceedings.

Public filing of commitment papers

Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?

There is no general requirement for the public filing or publication of commitment letters or acquisition agreements under Austrian law. However, the transfer of business units pursuant to an asset deal must be registered in the Companies Register, which also requires the submission of the respective contract to the competent court for publication (redactions are possible). In share deals, usually no such submission of the underlying agreement is necessary but may nevertheless be demanded by the courts in a particular case.

In the context of mergers and de-mergers, the draft merger agreements or de-merger plans must be published through the web portal of the Federal Ministry of Justice.

If an entity directly or indirectly purchases or sells shares of an issuer whose shares are admitted to trading on a regulated market, they must inform the Financial Market Authority, the exchange operating company and the issuer of the shares immediately, but no later than two trading days, if, as a result of such acquisition or disposal, their voting rights amount to, exceed or fall below 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% or 90%.

Lastly, with regard to the acquisition of public companies that fall into the ambit of the Takeover Act, a certified confirmation of available funds must be published together with the offer documentation.