Acquisition Finance 2025 Comparisons

Local banks are often the first point of contact for companies seeking acquisition financing in Austria. They have a deeper understanding of the local market and can provide tailored financing solutions that align with the specific needs of businesses. Local banks typically offer various loan products, including term loans and revolving credit facilities, which can be structured to finance acquisitions. Their established relationships with local businesses and knowledge of regional economic conditions can facilitate smoother transactions and quicker approvals.

However, due to size and risk considerations, Austrian banks are often only providing financing for small and medium-sized enterprises (SMEs). When it comes to larger acquisition finance transactions where the target is a large Austrian company, an Austrian group or an international group including Austrian subsidiaries, the acquisition financing or leveraged buyout (LBO) structure, with the acquired company’s assets serving as collateral is usually provided by international financing syndicates consisting of renowned international and Austrian credit institutions. Their ability to offer syndication services allows them to pool resources and arrangement expertise from multiple lenders, making it possible to finance larger acquisitions that local banks may not be able to support alone.

Direct lenders, including private equity firms and alternative investment funds, are less common but become increasingly visible in the acquisition financing landscape. They offer flexible financing solutions that can be tailored to the specific needs of the acquiring company. Direct lenders often provide mezzanine financing, which sits between senior debt and equity in the capital structure, allowing companies to leverage their acquisitions without diluting ownership. This type of financing is particularly attractive for private equity firms looking to enhance their returns on investment.

While debt funds may be an alternative player in acquisition financing, especially for mid-market transactions, this is seen less often in Austrian transactions than transactions abroad. These funds specialise in providing debt capital to companies for various purposes, including acquisitions. They can offer a range of financing options, such as senior secured loans, subordinated debt and unitranche loans. Debt funds are often more flexible than traditional banks in their underwriting criteria, making them an appealing option for companies seeking to finance acquisitions quickly and efficiently.

Although considerably smaller than other jurisdictions, the Austrian acquisition financing market has experienced significant activity in recent years, particularly in terms of corporate acquisitions and LBOs. Notably, strategic investors have been prominent in driving these transactions. Public sources refer to the following recent largest transactions as illustrations of the robust activity in Austria’s acquisition financing market.

• Nippon Express’ acquisition of cargo-partner GmbH in 2023 for EUR1.4 billion.
• One Rock Capital Partners’ 61% investment in Constantia Flexibles Group in 2023 for EUR1.1 billion.
• Bain Capital’s 20% investment in IMS Nanofabrication GmbH in 2023 for EUR785 million.

It is basically permissible and does not hinder enforcement in Austria to choose a foreign law as governing law in loan agreements. The governing law in acquisition finance varies depending on the complexity of the transaction and the parties involved. If the acquisition is an Austrian domestic deal, Austrian law will usually be the governing law. In cross-border acquisitions, where multiple jurisdictions are involved, the governing law might be selected based on factors such as the location of the target or the jurisdictions of the financing parties (especially when large international banks are involved).

Common choices include English law, German law and New York law. While English law was chosen in the past in the majority of transactions, as a consequence of Brexit, German law in recent years has become more important for transactions with respect to Austrian targets.

Other than for loan and intercreditor agreements, there are restrictions on the granting and perfection of security rights. Depending on the type of security, the security agreements over Austrian assets must be governed by Austrian law. This applies, among others, to pledges over shares in Austrian companies, pledges or security assignments of Austrian law governed receivables and the creation of mortgages over real estate located in Austria.

The financing documentation used for Austrian transactions varies considerably depending on the type and size of transaction and the parties involved.

Bank loan documentation typically includes standardised terms and forms that are widely recognised and accepted in the market. In particular, the documentation of the Loan Market Association (LMA) is often used as a reference point. However, local practices and legal requirements also play a significant role.

As far as smaller, non-syndicated transactions are concerned, Austrian banks frequently work with in-house form documents. The basis for these smaller financing transactions are usually standardised loan agreements as used by the respective local credit institutions.

When it comes to international loan syndicates or large-volume domestic syndicate transactions, the parties usually use the recommended LMA standards.

The documentation in Austrian transactions is often based on the LMA structure and content but implements certain particularities required for the specific situation, usually with a reduced scope compared to the LMA standard. As each transaction is unique to a certain extent, the parties typically introduce modifications and tailor the standard documentation in line with the specifics of the particular transaction.

There is basically no requirement under Austrian law to choose a particular language in the loan documentation. The choice of documentation language in acquisition financing transactions mostly depends on the parties involved. Smaller domestic transactions, in which the borrower is a less internationally-oriented company with little international exposure and the lenders are Austrian and/or German banks, are usually documented in German.

However, domestic lenders are also tending to increasingly document transactions in English as this is either required by the lenders involved (eg, as they are international lenders or need to increase flexibility in terms of international syndication) or facilitate a later review of the relevant documentation on an international level (eg, in the case of international investors stepping in at a later point).

In acquisition finance transactions, legal opinions play a crucial role in ensuring that the lenders have clarity on the legal aspects of the transaction. Austrian legal opinions in acquisition financing transactions usually cover:

• the existence and capacity of the Austrian parties involved on the borrower side (Austrian borrowers, guarantors and security providers), including whether all necessary board resolutions have been passed and that the signatory of the agreements has the corresponding power of representation (a so-called capacity opinion); and
• the validity, effectiveness and enforceability of the relevant agreements (loan agreement, intercreditor agreement, security agreements (a so-called enforceability opinion).

The market standard in Austria is that the capacity opinion is issued by borrower counsel and the enforceability opinion by lender counsel.

Depending on the requirements of the transaction, additional expert opinions may have to be obtained to confirm the tax treatment of the acquisition finance transaction and ensure that the structure does not expose the borrower or lenders to unexpected tax liabilities (a tax opinion).

In Austrian acquisition finance, senior loans are the most important debt instrument. The instrument is typically structured to ensure robust lender protection while complying with local legal and tax requirements. The structure depends on the size and complexity of the transaction but certain elements are consistently used across all deals.

Senior debt is also ranked higher than other debt components in the capital structure, such as mezzanine facilities, high-yield debts or hybrid instruments. In the event of liquidation, senior debt must be paid back first before other creditors receive payment.

Senior loans are often arranged either as bilateral facilities for smaller transactions or as syndicated loans in larger deals. In most cases, the financing includes a term loan to fund the acquisition and a revolving credit facility for the ongoing working capital needs of the borrower group (including the target). The various tranches usually have different maturities. Senior loans are typically collateralised by assets. The lending is usually made directly to the operating company or the acquisition vehicle (opco structure), giving lenders access to the cash flow and enabling them to take direct security over assets. Holdco lending, where senior financing is granted on the level of the operating or acquisition vehicle in the group structure, is generally avoided by senior lenders, as it is structurally subordinated and offers less direct recourse in enforcement scenarios.

A key feature of senior loan structures is a comprehensive Austrian law security package, typically including share pledges, account and receivables assignments, asset and IP pledges, and, where applicable, real estate mortgages. In syndicated loan transactions, these securities are typically held by a security agent on a parallel debt basis, which ensures enforceability under Austrian insolvency law. Guarantees are commonly required from material subsidiaries. All securities must comply with strict capital maintenance rules in Austria. This means upstream or cross-stream guarantees must offer a demonstrable corporate benefit to the guarantor and be subject to appropriate limitations.

Senior loans typically have the lowest cost of capital compared to other tranches in the capital structure.

In Austrian acquisition finance, mezzanine and payment-in-kind (PIK) loans are commonly used to bridge the gap between senior debt and equity. These instruments are particularly attractive in LBOs, where flexibility in repayment and structural subordination are essential to preserving the senior lenders’ position.

Mezzanine or PIK loans are typically provided in the form of unsecured or subordinated loans (Nachrangdarlehen) and issued at the holdco level. They sit above the operating or acquisition vehicle in the group structure. This creates structural subordination, meaning that in the capital structure mezzanine lenders rank behind senior lenders in terms of access to assets and cash flow, but above equity holders. The intercreditor agreement clarifies the structural relationship between mezzanine creditors and other creditors by way of contractually subordinating the claims of the mezzanine creditors. The holdco is usually funded by equity and mezzanine, while the senior loans are raised at the level of the opco.

In PIK loans, instead of paying interest in cash, the borrower may capitalise interest, adding it to the principal, which defers actual payment until maturity or refinancing. This structure eases short-term cash flow pressure on the operating business, which is a key consideration in highly leveraged deals.

In both mezzanine and PIK loans, security and guarantees are generally not provided by the opco or its subsidiaries, both to preserve the priority of senior lenders and to comply with Austrian capital maintenance rules.

In some cases, equity kickers such as warrants or conversion rights are attached to mezzanine loans to compensate lenders for the higher risk, offering upside participation in the equity value of the business.

Bank loan facilities are sometimes used as “bridges” to permanent debt security financings. “Bridge” loans are short-term with higher interest rates and quick access to funds. They serve to provide immediate financing until a long-term solution, such as issuing debt securities, can be arranged. In acquisition financing transactions, “bridge” loans are typically put in place to “bridge” a potential gap between the announcement of an acquisition and the securing of permanent financing by a company, particularly if the transaction timeline does not allow for full syndication of the loan before closing.

“Bridge” loans are basically more flexible in repayment terms and often used in acquisitions, real estate transactions or project financing. Once debt securities are issued, the “bridge” loan is repaid with the proceeds of debt securities, allowing borrowers to access longer-term financing with better terms.

The interest rates of “bridge” loans depend on the credit rating and default risk of the borrower. However, the interest rates are higher than typical rates in ordinary circumstances. Additionally, the “bridge” loan documentation often provides for interest rate increases or additional fees periodically across the term of the loan or in the case of extension. This incentivises the borrower to repay the loan as soon as possible.

As in other jurisdictions, acquisition financing in Austria involving bonds follows international structure and market standards, especially those of the UK and the US. The structure is designed to provide flexible capital to support acquisitions, often in LBO scenarios.

Given the usually smaller volume of acquisitions in Austria, high-yield bonds are less important and are seen instead in international transactions involving Austrian companies in the borrower group. However, an important reason for bond financing in Austrian transactions is the strict Austrian banking licence regime. Commercial lending is considered a regulated activity in Austria and therefore requires a banking licence under the Austrian Banking Act (Bankwesengesetz or BWG). Licence requirements can be lawfully circumvented if, instead of granting a loan, bonds are issued by the borrower and acquired by the lender.

The bond is typically not issued by the acquiring company directly, but through a non-operational bidco, a special purpose acquisition vehicle, or a non-operational holdco, which sits above the target in the group structure. They do not generate their own revenue but rely on the target’s cash flow, usually via dividends, upstream loans or intercompany payments, to service the debt.

The bonds themselves are usually structured as senior secured or senior unsecured notes, depending on the credit profile of the issuer and investor appetite. In more leveraged or higher-risk deals, subordinated notes or PIK notes are also used, especially to plug gaps in the capital structure where bank financing or senior debt is not available. In the case of senior secured bonds, the bondholders benefit from security interests. However, especially in cross-border deals or where multiple layers of financing exist (eg, bank loans), the bonds may be contractually subordinated or structurally subordinated (if the issuer is a holdco and not the opco).

High-yield bonds used in Austrian acquisition financing or international financing involving Austria are typically governed by New York or English law and come with customary incurrence-based covenants, meaning that the company has more operational flexibility compared to traditional bank debt. However, it also means they must meet certain conditions (like leverage ratios) before taking on more debt or paying dividends. Maturities usually range between five and eight years and the pricing reflects the higher risk, especially if the bonds are unsecured or subordinated.

In Austria, private placements and loan notes (promissory note loans or Schuldscheindarlehen) offer a flexible and cost-efficient alternative to traditional bank lending or capital market instruments such as initial public offering (IPO) or bonds for a company seeking to raise capital, particularly for mid-sized and larger corporates looking to diversify their funding base. However, while frequently seen in the Austrian market in general, they do not play a significant role in Austrian acquisition financing transactions.

These instruments are typically structured as bilateral or club-style loans and are privately placed with a limited number of institutional investors such as insurance companies, pension funds or specialised debt funds. The documentation is relatively lean compared to syndicated loans or public bonds, making private placements an attractive option for issuers seeking streamlined execution and discretion.

The legal structure is usually based on loan agreements rather than securities, which means they are not subject to capital markets regulation (eg, prospectus requirements), provided they are not publicly offered. For this reason, Schuldscheindarlehen do not constitute tradeable securities under Austrian law, although they may still be transferable under certain conditions.

In terms of the borrower capital structure, loan notes are typically issued at the opco level, backed by the group’s creditworthiness. However, larger groups may also issue them through a finance subsidiary or holdco, particularly if tax or corporate structuring requires flexibility. Most Austrian private placements are unsecured, although negative pledge and pari passu clauses are common to protect investors from future secured borrowings that could dilute their position. In some cases, particularly where credit risk is higher, investors may request limited security or covenant protections.

Loan notes may carry either fixed or floating interest rates, with maturities typically ranging from three to ten years. They are usually governed by German law, but can be governed by Austrian law, depending on the issuer’s preference and investor base. However, international private placements may be done under English law as well.

In Austria, asset-based financing is uncommon for acquisitions, but is often used to complement traditional bank loans or bonds, particularly in deals involving companies with strong working capital assets like receivables, inventory or machinery.

The financing is typically set up at the opco level, rather than at the holdco or acquisition vehicle level. Lenders provide revolving credit lines or term loans secured against specific assets. The most common are receivables-based facilities (like factoring or invoice discounting), inventory-backed loans and equipment or real estate-backed loans.

These structures are particularly useful in industrial, retail or logistics acquisitions, where the company’s asset base is strong but earnings before interest, taxes, depreciation and amortisation (EBITDA) may not support large amounts of traditional debt. The asset-based financing lender relies on the value and quality of the assets, not the company’s profitability and typically requires tight control, including asset reporting and security over accounts, stock and contracts.

While asset-based financing structures are flexible, they must also navigate Austrian-specific legal issues, particularly with regard to security perfection and strict capital maintenance rules.

In acquisition finance transactions, intercreditor agreements play a crucial role in defining the relationship between different creditor classes, particularly where senior, mezzanine and junior debt is granted. The intercreditor agreement ensures a clear hierarchy of rights and remedies, especially in distressed scenarios.

The central features of an intercreditor agreement are:

• the ranking of debt and payment waterfall: the agreement sets out the priority of claims, ensuring that senior lenders are paid first, followed by mezzanine and then junior creditors. If a junior lender receives payment in breach of this ranking, turnover provisions typically require them to pass those funds on to the senior creditors. In the event of insolvency, senior creditors usually take the lead in managing proceedings. The intercreditor agreement also deals with procedural matters like claim filings and the treatment of post-insolvency interest;
• enforcement rights: junior creditors usually agree to a standstill period, during which they cannot take enforcement action, giving senior lenders time to recover their claims first. Control over enforcement is typically in the hands of senior lenders, who may also have step-in rights to direct proceedings initiated by others;
• subordination is addressed both structurally and contractually. In many cases, mezzanine lenders are structurally subordinated by lending at the holdco level, while contractual subordination ensures they rank behind senior debt in terms of payment and security enforcement;

• role of the security agent: security interests are generally held by a common security agent for the benefit of all lenders. The intercreditor agreement outlines how enforcement proceeds are shared and under what conditions security may be released, particularly in restructurings;
• transfer restrictions: they may prevent junior debt from being sold to competitors or opportunistic distressed investors and set rules for sponsor-led debt buybacks; and
• voting and amendment rights are typically tiered, with senior lenders often holding veto power over key decisions, especially those affecting their priority or security. Thresholds for majority decisions are clearly defined to ensure co-ordination among creditors.

While intercreditor agreements are often governed by English law, particularly if international lenders are involved, Austrian law may apply in purely domestic transactions.

Bank/bond deals combine both senior bank loans and bonds to provide the financing for the acquisition. This structure offers the borrowers flexibility, allowing them to tap into different sources of capital while balancing risk and cost. Bank/bond deals are not often seen in Austria Mainly because of the size of the market. One recent example was the acquisition financing of ams AG to take over OSRAM.

The bank loans, usually provided through a syndicated facility, are secured debt that typically include a term loan for the acquisition and a revolving credit facility for working capital. These loans are generally shorter in duration (five to seven years) and have a floating interest rate. The senior bank debt is prioritised and secured by a range of assets like share pledges and receivables.

Bonds, on the other hand, are used to provide long-term, unsecured financing. They typically have longer maturities (seven to ten years) and offer a fixed interest rate. Bonds can either be high-yield or investment grade, depending on the risk profile of the transaction. The bonds are subordinated to the senior loans, meaning the bank lenders have priority in case of a default.

This combination of senior debt and bonds allows the borrower to optimise capital costs. The senior loans offer lower interest rates due to their secured nature, while the bonds provide long-term stability, albeit at a higher cost.

In Austrian acquisition finance transactions, hedge counterparties are relevant to manage interest rate and currency risks, particularly when loans have floating interest rates or involve cross-border transactions. Their role in intercreditor agreements is typically focused on ensuring that hedging arrangements are respected and that any payments or collateral related to hedging do not conflict with the senior debt.

Hedge counterparties’ claims for payment (eg, from interest rate swaps or foreign exchange contracts) are usually subordinated to the senior debt, but they may have certain rights, such as access to collateral in the event of default.

There are two general types of security provided in Austrian acquisition finance transactions: in rem security and personal security.

In Rem Security

Austrian law does not permit the generic granting of a security interest in all the assets, including all future assets, of a borrower or third-party security provider. Individual security interests may only be granted with respect to a specific asset, which must already exist or at least be determinable at the time the security is granted. The degree of specificity varies according to the type of asset and is generally very strict (eg, the precise type, value and location of assets and the precise date, parties and subject matter of contracts is required).

There is no standard approach to providing security in an Austrian loan transaction. The usual Austrian security package for loan transactions, including acquisition financing transactions, consists of:

• a pledge of shares;
• a global pledge or assignment of receivables (global assignment of existing and future receivables, including intra-group and trade receivables and insurance claims); and
• a pledge of bank accounts.

A pledge of IP rights may also be of interest, if the relevant Austrian company holds any trade mark or other IP rights of relevant value. Parties usually refrain from taking security over real estate in Austria, as registration of a mortgage triggers inappropriately high registration costs. Security over assets is also usually not taken (or is restricted to limited fixed assets of a value exceeding an agreed threshold), as perfection of security over assets typically interferes with using these assets in the ordinary course of business and the pledgee is required to have custody over these assets).

Depending on the practical value of the collateral and the perfection and administrations costs, parties decide which assets will serve as security for the loan on a case-by-case basis.

Personal Security

In general, the following personal security interest may be granted in Austrian loan transactions:

• guarantees;
• assumptions of debt;
• sureties; and
• letters of comfort.

The most common personal security granted in large acquisition finance or LBO transactions is guarantees. Under Austrian law, a guarantee is an abstract obligation, whereby the guarantor undertakes to satisfy the creditor in the event that the principal debtor fails to fulfil its obligations. The guarantee is a contract between the creditor and the guarantor. The guarantee is not an accessory and is therefore not dependent on the occurrence and existence of the main claim. Accordingly, only defences arising from the guarantee agreement itself, as well as objections due to misuse of rights in calling the guarantee, can be raised by a guarantor.

While a guarantee by an Austrian company is typically included in the loan agreement (rather than in a separate guarantee document), in rem security is created by entering into separate security agreements.

Except for mortgage agreements (real estate pledge), none of the Austrian security agreements require notarisation or another specific form. Conclusion in writing with uncertified signatures is sufficient.

Under Austrian law, only the mortgages (real estate pledge) and IP pledges require registration.

The perfection requirements depend on the type of security interest.

• Shares:
1. notice to the company whose shares are pledged (limited liability company);
2. physical transfer (in the case of bearer shares of a joint stock corporation);
3. endorsement of the share certificate and physical transfer (in the case of registered shares); or
4. pledge note in the electronic books of the pledgor (Buchvermerk).
• Receivables:
1. notification to the respective third-party debtors (Drittschuldnerverständigung); or
2. pledge note in the electronic books of the pledgor (Buchvermerk).
• Insurance receivables:
1. notification to the respective insurance company; or
2. pledge note in the electronic books of the pledgor (Buchvermerk).
• In addition, a Vinkulierung could be made, whereby it is agreed with the insurer that it must not pay out any sums to the pledgor and must notify the pledgee where the pledgor does not pay the premiums.
• Bank accounts:
1. notification of the account holding credit institution; or
2. pledge note in the electronic books of the pledgor (Buchvermerk).
• IP rights:
1. additional act depending on the IP right (eg, registration of the pledge with the public Austrian trade mark or patent register at the Austrian Patent Office (Österreichisches Patentamt)); or
2. in the case of non-registered IP rights, a pledge note in the electronic books of the pledgor (Buchvermerk).
• Movable assets:
1. delivery of pledged asset into the custody of a pledgee or a custodian (alternative methods are available in certain instances, eg, affixing placards identifying the secured party); or
2. pledge note in the electronic books of the pledgor (Buchvermerk).
• Real estate: registration with the competent land register (Grundbuch).

Failing to perfect a security interest results in the security interest being ineffective against third parties. In the event of the debtor’s bankruptcy or insolvency, the unperfected security interest may be treated as part of the general assets of the debtor and distributed to all creditors.

The most notable limitations on security provided by Austrian companies result from mandatory Austrian capital maintenance rules (Kapitalerhaltungsvorschriften). These rules apply to limited liability companies and joint stock companies as well as to certain kind of partnerships, where the only unlimited partner is a limited liability company or joint stock company.

As a general rule, Austrian companies must not distribute any funds, assets or any other benefit (including the provision of security) to their direct or indirect shareholders by means other than the formal distribution of a dividend further to a respective shareholder vote. All dealings between an Austrian company and its direct or indirect shareholders consequently need to be at arm’s length to be admissible.

However, a transaction that is operationally justified (betrieblich gerechtfertigt), meaning it is clearly in the benefit of the company and would have been concluded with a third party under the same conditions, even though there is an objective imbalance between service and consideration, does not violate Austrian capital maintenance rules.  This means that an Austrian (upstream and sidestream) security provider needs to receive sufficient funds from the loan, other consideration or an adequate corporate benefit from the overall transaction in return for any security it provided to, or for the benefit of, its (indirect) shareholders acting as borrower in a loan transaction.

Unless these criteria are met, the transaction is null and void in the legal relationship between the shareholder and its subsidiary. The shareholder is liable to return any undue benefit obtained. Furthermore, if the subsidiary incurs any damage due to an undue issuance of a guarantee or the undue provision of security, management may be personally liable for damages.

A third-party beneficiary (creditor) is not necessarily affected by the ineffectiveness of the provision of security in the legal relationship between the subsidiary and its shareholder. The ineffectiveness extends to a third-party beneficiary only if it knew or ought to have known that the provision of security was unlawful. However, this may, likely be the case where lenders are involved in the structuring of financing transactions.

Besides that, there are generally no applicable limitations or restrictions imposed by Austrian law regarding the entities which are permitted to provide collateral and guarantee support for bank loans. The choice of entities providing support is therefore usually based on commercial considerations, such as financial strength and existence of substantial pledgeable assets.

Austrian companies are prohibited from financing or providing assistance in the financing of the acquisition of their own shares. In line with strict Austrian capital maintenance rules the return of equity to shareholders outside arm’s length transactions (Verbot der Einlagenrückgewähr) is strictly restricted, except for the distribution of the balance sheet profit, in the course of a formal reduction of the registered share capital or for the surplus paid to shareholders following liquidation.

Section 66a of the Austrian Stock Corporations Act (Aktiengesetz) explicitly prohibits financing or providing assistance in the financing of the acquisition of its own shares or the shares of a parent company.

In addition to statutory restrictions, the articles of association or management by-laws of an Austrian company may restrict the creation of security interests in general or above defined thresholds.

Austrian security agreements typically foresee that lenders are entitled to enforce a security interest out of court, without any requirement to receive a title instrument for enforcement (Exekutionstitel) or to institute in court enforcement proceedings in line with the Austrian Enforcement Act (Exekutionsordnung). Enforcement may be carried out by public auction or by private sale.

Retention of a collateral is not permissible under Austrian law. The secured creditor must not take possession of the collateral and retain it to satisfy the secured debt.

As the guarantee in international acquisition finance transactions is often governed by foreign law, the following should be noted.

Austrian law and conflict of laws rules generally permit the choice of a foreign law as the governing law of a contract, even if the respective contract is to be enforced in Austria. Austrian courts will principally recognise the contractual choice of foreign law, subject to certain requirements (eg, actual conflict of laws or the contract relates to a civil and/or commercial matter). However, some restrictions apply regarding the granting and perfection of security rights, which, depending on the type of security, is in many cases governed by local Austrian law (eg, for pledges over shares in Austrian companies, pledges over security assignments of Austrian law governed receivables or for the creation of mortgages over real estate properties located in Austria).

Accordingly, it is common market practice that security rights over assets which are located in Austria, including those which are provided by Austrian domiciled transferors or pledgors, have Austrian law governed security documentation.

In principle, Austrian law distinguishes between two different types of guarantees:

• abstract guarantee (abstrakte garantie) according to Section 880a of the Austrian General Civil Code (the “ABGB”), by which the guarantor undertakes to pay on formal demand of the beneficiary (on first demand), without examining the merits of the demand. The guarantor՚s obligation to pay is abstract and therefore independent of the underlying legal relationship between the beneficiary as creditor and debtor. The guarantor may therefore not raise any objections based on the underlying legal relationship, but may only assert abuse of rights (Rechtsmissbrauch) by the beneficiary; and
• surety (Bürgschaft) pursuant to Section 1346 of the ABGB, under which the guarantor undertakes to fulfil specific obligations of the debtor if the debtor defaults on payment when due. The guarantee is accessory to the underlying legal relationship between the beneficiary as creditor and the debtor.

There are no other restrictions other than those described in the context of upstream/sidestream security.

The granting of guarantees on a commercial basis in Austria qualifies as “banking business” pursuant to Section 1(1)(8) of the BWG. While there is no statutory exemption for group financings, it is recognised that guarantees do not require a banking licence to the extent that they are granted solely for the obligations and liabilities of group companies with a view to achieving a group’s other overriding commercial goals.

There is no guarantee fee required under Austrian law. However, the parties frequently agree on the payment of a guarantee fee to the guarantor. They very often do so to provide additional consideration to the Austrian guarantors in order to mitigate risks in connection with strict capital maintenance provisions.

According to the Austrian Equity Substitution Act (Eigenkapitalersatz-Gesetz or EKEG), a lender who is granted extensive rights of control over the borrower, together with decisive influence over the borrower’s business in the loan agreement or any related security document may be qualified as a shareholder of the borrower. Where the borrower is in a “crisis”, a loan provided by the lender to the borrower may be considered as equity subordinated to the claims of all secured and unsecured creditors of the subsidiary.

The borrower is therefore prohibited to repay the loan to the lending shareholder as long as the “crisis” is ongoing. A debtor is considered to be in a “crisis” if it:

• is unable to pay its debt (zahlungsunfähig) within the meaning of Section 66 of the Austrian Insolvency Act (Insolvenzordnung or IO);
• is over-indebted (überschuldet) within the meaning of Section 67 of the IO; or
• has thin-capitalisation (an equity ratio of less than 8% and a fictional debt redemption period longer than 15 years).

In the context of acquisition finance in Austria, claw back rules are an important aspect of insolvency law that directly impact the structuring and risk assessment of LBOs and other acquisition finance transactions. These rules are primarily designed to protect the interests of creditors by preventing transactions that unjustly deplete the assets of a company to the detriment of its creditors, particularly in the period leading up to insolvency. Under Austrian insolvency law (primarily governed by the IO, certain transactions made prior to the opening of insolvency proceedings may be contested and reversed by the insolvency administrator. These claw back provisions aim to avoid preferential or fraudulent transfers made to the detriment of the debtor’s creditors.

Basically, if an agreement is not mutually fulfilled on or before the date insolvency proceedings started, the insolvency administrator can choose to direct performance or non-performance of the agreement.

Certain transactions can, within defined periods of time prior to the opening of the insolvency proceedings, be declared void where a successful challenge is made by the administrator either by legal challenge or defence under the IA. In summary, the reasons for voidability are as follows.

• Discriminatory intent (Benachteiligungsabsicht).
• Squandering of assets (Vermögensverschleuderung).
• Donations (Schenkung).
• Preferential treatment of creditors (Begünstigungsabsicht).
• Knowledge of insolvency (Kenntnis der Zahlungsunfähigkeit).

In bankruptcy proceedings (Konkursverfahren) as well as in reorganisation proceedings without a debtor-in-possession (Sanierungsverfahren ohne Eigenverwaltung), only the insolvency administrator is authorised to represent the debtor. Any disposition by the debtor of the company’s assets after that date is therefore void.

In reorganisation proceedings with a debtor-in-possession (Sanierungsverfahren in Eigenverwaltung), the debtor is entitled to carry on ordinary business activities but needs the approval of the reorganisation administrator for extraordinary business activities. Any impermissible divestment of the debtor’s property must be repaid to the insolvency estate.

Against this background, one of the most critical issues in connection with claw back rules in acquisition finance transactions is the granting of transaction security by an Austrian target. In order to protect the creditors of the Austrian target, the Austrian guarantor/security provider must receive adequate consideration or benefit from the overall transaction. The security may otherwise be qualified as detrimental to its creditors and therefore subject to claw back. The Austrian documentation commonly includes limitation language to address these risks.

The Austrian Stamp Duty Act (Gebührengesetz or GebG) specifies certain legal transactions that are subject to a stamp duty (Rechtsgeschäftsgebühr) of between 0.8% and 1% of the security amount. These legal transactions include certain security agreements that are typically entered into in connection with financing transactions (eg, sureties (Bürgschaften), assignments (Zessionen), assumptions of debt (Schuldübernahmen, Schuldbeitritte) and mortgage deeds (Hypothekarverschreibungen)).

An essential precondition for Austrian stamp duty to be applicable is that the relevant legal transaction is evidenced by a written document signed in, or brought into, Austria. The Austrian administration՚s understanding of a “written contract” is very broad and not only covers paper contracts but also contracts concluded by electronic means (eg, electronically signed emails).

Stamp duty may also be triggered by references to any finance documents that contain stampable transactions or refer to stampable transactions in another written document (so-called substitute documentation or Ersatzbeurkundung). A mere reference in any form (eg, letter, paper, email, fax) may therefore be sufficient to trigger that risk.

Since 2011, an exemption from stamp duty applies to a security agreement that is concluded to secure loan obligations. However, this exemption may not apply in the case of obligations set out in the loan documentation but are not to be qualified as loan obligations (eg, obligations under hedging arrangements). Accordingly, it became a market standard to exempt these obligations from Austrian security coverage.

Care also has to be taken in relation to abstract guarantees and sureties. While an abstract first demand guarantee (including a waiver of all defences) is not subject to stamp duty, a suretyship (Bürgschaft) or an assumption of debt as co-debtor (Schuldübernahme) triggers stamp duty.

Stamp duty may therefore be avoided by not recording transactions in written form (eg, oral contracts, factual acceptance of written offers, etc). As this is impracticable in the context of larger financing transactions, the following risk mitigation measures have been established as a market standard in Austria.

• The most important avoidance structure regarding finance transactions is to set up documentation abroad (Auslandsbeurkundung) to prevent the existence of an Austrian connection. For this reason, the finance documentation should include a respective stamp duty warning on the cover page, a stamp duty clause that allocates the stamp duty risk between the parties and a clause stipulating the place of performance to be outside of Austria.
• With regard to guarantees there are two measures to mitigate the risk of triggering Austrian stamp duty:
1. making sure that the guarantee is an abstract, first demand guarantee (abstrakter garantievertrag) pursuant to Section 880a second case of the Austrian Civil Code; and
2. limiting the guaranteed obligations to obligations and liabilities under the loan agreement (as opposed to all finance documents).

In loan transactions, qualifying lenders and withholding tax are crucial, especially for cross-border dealings. A qualifying lender is a financial institution or entity that meets certain criteria under tax laws or treaties, allowing them to benefit from preferential tax treatment. For example, if a country has a tax treaty with the lender’s home country, the lender might receive interest payments with reduced or no withholding tax. This is beneficial for both the lender and the borrower as it reduces the overall cost of borrowing.

Withholding tax is a tax imposed on interest payments made by a borrower to a lender, typically in a different country. The tax rate varies depending on the jurisdiction and any applicable tax treaties. However, in Austria, repayments of principal and interest under loan agreements are generally not subject to withholding tax. These payments are instead treated as part of the lender’s corporate income tax. The exceptions include interest on bank deposits, non-securitised claims against banks and publicly offered debt instruments like bonds, which are subject to a withholding tax of 27.5%. This rate is reduced to 25% for corporate lenders.

There are several exceptions where no withholding tax is levied on interest payments in Austria:

• payments to foreign corporate taxpayers without a permanent establishment in Austria;
• payments to foreign individual taxpayers without a permanent establishment in Austria, provided there is an automatic exchange of information with Austria and the lender submits a valid tax residence certificate; and
• payments to Austrian corporate taxpayers who submit a valid exemption declaration.

Austria has a robust network of double taxation treaties with other countries, which often allow for the withholding tax to be credited or refunded. If withholding tax is applied, the taxpayer can file for a refund, either partially or fully, depending on the treaty terms. Additionally, capital gains from the sale of loans or bonds are only subject to Austrian withholding tax if an Austrian custodian or paying agent is involved in the transaction.

Qualifying lenders benefit from favourable tax treatment, often reducing or eliminating withholding tax on interest payments. Austria’s tax system, particularly its broad double taxation treaty network, ensures that cross-border loan transactions are treated in a tax-efficient manner for both foreign and domestic lenders.

There are no specific thin-capitalisation rules in Austria. The Austrian tax authorities, in general, accept a debt/equity ratio of 4:1 (even higher in a holding context).

If the transaction involves a regulated Austrian target, particular regulatory requirements under Austrian law must be taken into account. These include the following.

• Certain funds: the financing of the regulated target must be firmly committed and largely unconditional by the time regulatory filings are made. Respective legal requirements are set out, eg, in the BWG, the Austrian Takeover Act (Übernahmegesetz) and the Investment Control Act (Investitionskontrollgesetz). In public or particularly regulated deals, banks often issue commitment letters showing that the full purchase price is covered, giving comfort to authorities and sellers.
• Foreign direct investment (FDI): in the acquisition of a qualified participation by investors from outside the EU in certain sensitive businesses (eg, financial, telecom, media or energy companies), Austrian investment control rules according to the Investment Control Act (Investitionskontrollgesetz) require the prior approval of the Austrian Ministry of Economy. The process can delay closing and includes a review of the investor’s ownership structure, source of funds and sometimes the lenders involved as well.
• Credit institutions: the acquisition or increase of a direct/indirect qualifying holding in an Austrian credit institution must be reported to the Austrian Financial Market Authority (the “FMA”). A qualifying holding is one that represents 10% or more of the capital and/or voting rights in the credit institution or which reaches other relevant thresholds (20%, 30% or 50%).
• Listed Targets: see 9.2 Listed Targets.

For listed targets, the major shareholder reporting requirements are laid out in line with the Austrian Stock Exchange Act 2018 (Börsegesetz 2018). Any person who, directly or indirectly, reaches, exceeds or falls below the thresholds required by law (between 4% and 90% or, if included in the target’s articles, between 3% and 90%) is obliged to file a notification with the FMA, the Vienna Stock Exchange (Wiener Börse or VSE) and the target without undue delay but within two trading days at the latest.

The Austrian Takeover Act (Übernahmegesetz or ÜbG) also provides for the possibility for the target to lower the takeover threshold which triggers the reporting obligation. Reporting requirements also apply if certain financial instruments are acquired or sold or if a person can exercise or influence the exercising of voting rights without being the owner of the financial instruments.

Apart from the considerations discussed in this guide, there are no other relevant considerations to take into account in Austrian acquisition finance transactions. This is of course subject to unexpected issues arising on a specific case-by-case basis.