IFLR 1000
The Guide to the World's Leading Financial Law Firms

CONTEXT AND TRENDS
With ECB (European Central Bank) backing, Austrian banks are liquid and looking for good corporate credit. "Liquidity is not the issue as it was in 2008 and 2009 because the ECB is providing sufficient funding....

CONTEXT AND TRENDS

With ECB (European Central Bank) backing, Austrian banks are liquid and looking for good corporate credit. "Liquidity is not the issue as it was in 2008 and 2009 because the ECB is providing sufficient funding. It is a matter of finding quality borrowers," observes one practice head. Commentators note that lending picked up in 2011 with refinancings, acquisition financing, project financings into CEE (Central & Eastern Europe) and syndicated loans making up the bulk of the new money deals. Banks are, however, being more selective and diligent, demanding tighter covenants and security packages. "Banks are more cautious, there is more interaction between risk management and the market," notes one lawyer.

As in Europe when "Greece hit," Austrian banks grew slightly more conservative. But any drop in off in new money transactions was more than compensated for by restructuring work. Although Austrian banks appear to be through the worst of the crisis, some domestic companies still recovering from the repercussions of 2009 were unable to contend with the difficulties created by the current issues in the Euro zone. "These companies, all their reserves and buffers were taken off in 2008. Then there was a short recovery, which was not long enough for some companies and now a double dip and they have had to speak to their banks again," says one partner.

As with many European jurisdictions, with banks attempting to meet capital adequacy ratios in the run up to June 30, regulatory work has been increasing. With the emphasis on getting money off balance sheets, there have been a growing number of sophisticated transactions concluded as banks bid to improve their equity ratios. "We look at selling bank assets, we look at selling receivables either true sale or synthetics," says one lawyer. In Austria this was given further credence when its national bank decreed its country's banks will meet Basel III requirements early, as soon as they take effect January 2013.

CONTEXT AND TRENDS
Any optimism engendered by the Vienna Stock Exchange's first IPO in four years in 2011 has abated as several planned transactions were postponed due to market volatility. A good proportion of the activity that has been successful has come from banks looking to repay the state funds received during the crisis....

CONTEXT AND TRENDS

Any optimism engendered by the Vienna Stock Exchange's first IPO in four years in 2011 has abated as several planned transactions were postponed due to market volatility. A good proportion of the activity that has been successful has come from banks looking to repay the state funds received during the crisis. There has also been a handful of capital increases – Lenzig and OMV's were among the largest – and some rights issues.

The picture on the debt side is far more positive. Publicly listed corporate bonds, EMTN, private placements and hybrids have all been popular instruments in 2012. The reason the debt market is prospering is twofold. On the one hand, it is a familiar story, bank financing is currently far more expensive than issuing debt and with interest rates low and sovereign debt coupon's low there is demand for corporate bonds from investors looking for a higher coupon or simply because it is the only option. On the other hand, stricter capital requirements have led banks to encourage borrowers to issue debt because, quite simply, they can't afford to have the loans on their books as it negatively impacts their capital ratio. "Even if a bank holds the bonds for regulatory reasons there is different treatment in capital so it can be a hidden loan," explains one lawyer.

Several alternatives to raising straightforward debt are being utilised by a number of corporate issuers. One increasingly popular instrument is schuldscheine (loans against borrower's notes): facility agreements similar to a note, which can be traded on the capital markets. While these notes are not technically securities they are an attractive proposition as "they still generate substantial amounts but the documentation is simpler and the deal goes more quickly". Another interesting development has been blue chip companies' reputedly making enquires about securitising their assets.

One instrument that may soon may make its first appearance on the Austrian market is CoCo (contingent convertible) bonds. Although there are no issues yet, several banks mandated firms to prepare for issues prior to the deadline to meet the EBA (European Banking Authorities) capital requirements on June 30.

CONTEXT AND TRENDS
Lawyers are reasonably optimistic about the current M&A market. "People are looking at deals, valuations are reasonable – it's a sober approach for buyers and sellers," notes one lawyer....

CONTEXT AND TRENDS

Lawyers are reasonably optimistic about the current M&A market. "People are looking at deals, valuations are reasonable – it's a sober approach for buyers and sellers," notes one lawyer. Although the market could not be described as active, there is a sufficient volume of deals to content most practices. "We saw quite a pickup in summer 2011 all the way through to the end of the year and into 2012," remarks one partner.

Different firms attribute different drivers to the recent growth in transactional work. While one practice head blames "consolidation, consolidation," others feel the reasons have been more diverse and sector specific.

With regards to activity in the public sector, lawyers suggest a lack of central government funding is one contributing factor to deals. "With publicly controlled companies it's noticeable that they need liquidity and they are divesting or bringing in investors because of the lack of funds from the state," says one partner.

With banks looking to balance their books in light of the impending ECB and EU capital requirements, one of the most buoyant areas has been financial services, with a number of banks divesting non-core assets. Lawyers agree that "regulation is driving deals" of which the biggest example was Volksbank sale of its international banking arm to Russian lender Sberbank.

Private equity transactions also made up a portion of some firms work with clients looking at exits. "We have seen private equity funds divesting or intending to, they are just looking at collecting returns," says one partner. Although it's still a slow market in terms of strategic M&A, there have also been a few more transactions, "either where a company has come full circle or there was no room for growth without integrating into a larger unit."

On the legislative side, there were amendments made to the Austrian Foreign Trade Act, introducing approval requirements for any transactions in certain "sensitive" industry sectors. Any foreign investment by buyers based outside the EU in strategically important Austrian industries such as defence, healthcare and energy must be now be approved by the state. Lawyers say the law was changed to protect the national interest. "Austria is concerned by foreign control of sensitive industries. You see financially strong investors, some of them state controlled themselves, from Russia and Asia interested in buying technologies or accessing certain resources and the concern is that the national interest is affected and that there might be some political interest from these investors," says one.