Mezzanine Loan Agreement Template for Indonesia
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What is a Mezzanine Loan Agreement?
The Mezzanine Loan Agreement is a sophisticated financing instrument used when companies require additional funding beyond traditional senior debt but are not ready for pure equity investment. This document is particularly relevant in the Indonesian market where growing companies often need flexible financing solutions to fund expansion, acquisitions, or major capital expenditures. The agreement addresses key aspects such as subordination to senior debt, security arrangements, and equity conversion rights, while ensuring compliance with Indonesian financial regulations, including OJK (Financial Services Authority) requirements and Bank Indonesia regulations. The document typically includes comprehensive provisions for interest calculation methods, repayment terms, financial covenants, and detailed conversion mechanics, making it suitable for complex financing structures in the Indonesian context.
About the Mezzanine Loan Agreement
A Mezzanine Loan Agreement is a complex financing document that bridges the gap between traditional debt and equity financing in Indonesia. You'll use this agreement when your company needs substantial capital but wants to avoid immediate equity dilution while providing lenders with potential equity upside through conversion rights. The document must comply with multiple layers of Indonesian financial regulation, including the Indonesian Civil Code, Banking Law, and OJK supervision requirements.
When do you need this document?
You'll require a Mezzanine Loan Agreement when your company has reached its senior debt capacity but needs additional funding for growth initiatives. This typically occurs during major expansions where traditional bank loans are insufficient but full equity investment isn't desirable. Indonesian companies often use mezzanine financing for acquisitions, international expansion, or significant capital expenditures where the risk-return profile justifies higher interest rates in exchange for conversion features. The document is particularly valuable when you need to maintain control while accessing patient capital that can convert to equity under specific circumstances.
Key legal considerations
Your Mezzanine Loan Agreement must carefully address subordination arrangements to senior debt, ensuring compliance with existing loan covenants while protecting mezzanine lender rights. Critical provisions include detailed conversion mechanisms, anti-dilution protections, and comprehensive security arrangements that don't conflict with senior lender security. You'll need robust financial covenants, detailed default provisions, and clear enforcement procedures that account for the hybrid nature of mezzanine financing. The agreement must establish precise interest calculation methods, payment waterfall structures, and exit provisions that protect all parties' interests while maintaining operational flexibility for your business.
Legal requirements in Indonesia
Under Indonesian law, your Mezzanine Loan Agreement must comply with Banking Law No. 10 of 1998 regarding financial institution activities and lending requirements. If foreign lenders are involved, the agreement must satisfy Investment Law No. 25 of 2007 provisions regarding foreign investment structures and approvals. Corporate aspects must align with Limited Liability Companies Law No. 40 of 2007, particularly regarding share issuance procedures and shareholder rights related to conversion features. The document must incorporate Indonesian Civil Code contract formation and validity requirements, ensuring enforceability in Indonesian courts. Additionally, if your company operates in regulated sectors, specific sectoral regulations may impose additional compliance requirements that must be reflected in the agreement terms and structure.
GOVERNING LAW
Applicable law
This Mezzanine Loan Agreement is drafted to comply with Indonesia law. Key legislation includes:
Law No. 7 of 1992 on Banking as amended by Law No. 10 of 1998: Regulates banking activities and financial institutions in Indonesia, including lending activities and requirements
Law No. 25 of 2007 on Investment: Governs foreign investment in Indonesian companies, relevant for mezzanine financing structures involving foreign lenders
Law No. 40 of 2007 on Limited Liability Companies: Regulates corporate matters including share issuance, shareholder rights, and corporate governance relevant to mezzanine financing structures
Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations: Governs bankruptcy proceedings and creditor rights, crucial for understanding enforcement and remedies
Bank Indonesia Regulation No. 16/21/PBI/2014 on Implementation of Prudential Principles: Sets out prudential requirements for lending activities and risk management in financial transactions
Law No. 24 of 1999 on Foreign Exchange Flow: Regulates foreign currency transactions and reporting requirements for cross-border financing
OJK Regulation No. 31/POJK.05/2014: Provides guidelines on business conduct for non-bank financial institutions, relevant for mezzanine lenders
Law No. 42 of 1999 on Fiduciary Security: Governs the creation and enforcement of security interests in movable assets, relevant for collateral arrangements
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