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Structuring a lending transaction
General Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)? The main providers of secured finance are:
- locally incorporated banks (many of which are subsidiaries of international banks);
- local branches of international banks;
- finance companies; and
- certain incorporated societies and similar entities.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions? No. There are fairly well-established commercial approaches to many terms, but no real standardisation of documentation. Some reference is had to forms of loans published by the Asia Pacific Loan Market Association, but each lender generally has its own form of documentation.
Syndication Are syndicated secured loan facilities typical in your jurisdiction? Syndicated secured loan facilities are not uncommon. However, most secured lending is to entities that do not have enough debt to justify a banking syndicate and some entities that have enough debt prefer to have a number of separate bilateral arrangements, rather than a syndicated arrangement.
How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members? Syndicated facilities are usually structured using:
- a security trustee to hold the security (if any) on behalf of the syndicate; and
- a facility agent to manage the loan administration for the syndicate.
New Zealand law allows for the appointment of agents. Accordingly, a facility agent, with the ability to contractually bind the members of the syndicate, is possible.
Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate? New Zealand law allows for security and guarantees to be held on trust for the benefit of a banking syndicate.
Special purpose vehicle financing Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security? SPVs are commonly used only for transactions where limited recourse is needed for some reason (eg, a securitisation transaction or some project finance transactions). In general secured lending, the assets are not usually held by an SPV. Where SPVs hold the assets being financed, security is typically taken over the assets and the SPV's shares.
Interest Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, LIBOR, EURIBOR or HIBOR)? If the latter, which is the most commonly used reference rate in your jurisdiction? Reference rates are usually bank base rates for individuals and smaller corporates and a market standard variable rate for larger borrowers. Where a market standard variable reference rate is used, it is the Bank Bill Reference Rate (BKBM), unless the borrowing is not in New Zealand dollars, in which case it will be the prevailing rate used in the relevant jurisdiction (eg, LIBOR for UK pounds sterling). The BKBM rate is published on Reuters and is set by the New Zealand Financial Markets Association based on a mix of data from actual trades and bids.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans? No.
Use and creation of guarantees Are guarantees used in your jurisdiction? Yes.
What is the procedure for their creation? Guarantees are created by contract. These are usually bilateral contracts, but can be created by a deed poll (ie, without the beneficiary of the guarantee being a party). They must be in writing, but there are otherwise no specific formalities required.
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)? No specific types of guarantee are unenforceable. There is no restriction on upstream guarantees.
Various equitable defences can be raised against the enforcement of a guarantee. For example, a guarantee obtained by a lender by duress is unenforceable. The most common concern for lenders is that of undue influence. If a guarantee is procured by undue influence to which the lender is a party, it is unenforceable. Whether undue influence has been exercised will be determined on a case-by-case basis and may be presumed in circumstances where a lender is aware of the vulnerability of the guarantor (eg, where the guarantor is an elderly grandparent) and has not ensured that the guarantor has independent legal advice.
In addition, guarantees may be unenforceable on the grounds on which any contract can be unenforceable. For example, a contract is unenforceable under New Zealand law if it is not supported by consideration. This can be an issue for guarantees and often leads to the guarantee being entered into as a deed, rather than an ordinary contract, because a deed need not be supported by consideration.
Subordination and priority Describe the most common methods of structuring the priority of debts and security. In almost all cases, a bank will take a first priority position. If there are multiple banks in a transaction, the banks will generally rank first and equally among themselves. Other lenders will often take a second-rank position behind a bank, but this is not always the case – they may lend in circumstances in which there is no bank or may rank first equal with the bank.
There are priority rules in relation to all security, but lenders usually supplement or alter these with a contractual arrangement between themselves. This is typically done using deeds of priority and subordination, but if there is shared security (eg, in a syndicated facility), it will typically be incorporated into the security trust deed or other deed under which the security trustee holds the security.
Documentary taxes and stamp duty Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement? No.
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