Private Credit in Dutch PE Transactions

Private credit can increase execution certainty, but it can also restrict portfolio company flexibility after closing

Private credit is non-bank debt financing provided by private lenders, credit funds or alternative capital providers, often used to finance buyouts, growth investments, refinancings or acquisition strategies.

In Dutch private equity transactions, private credit has become relevant because it can offer speed, flexibility and bespoke financing terms compared with traditional bank lending. For PE sponsors, founders, management teams and portfolio companies, it may support a buyout, bridge a financing gap, fund add-on acquisitions or refinance existing debt.

Private credit is not only a financing product. It affects governance, cash flow, security, covenant flexibility and future transaction options. A financing package that looks attractive at closing can later restrict dividends, add-on acquisitions, shareholder loans, management incentives, restructurings or exit planning if lender protections are too tight.

This article is part of the Hybrid Capital & Dutch Growth Financing Insights series, with practical guidance on structured growth capital, private credit and hybrid financing in Dutch companies.

Why private credit is used in Dutch PE deals

Private credit is often used where a transaction needs more flexibility than a traditional bank structure can provide. This can be relevant in leveraged buyouts, management buyouts, growth investments, buy-and-build strategies and refinancing situations.

For PE sponsors, private credit may help improve execution certainty. A private lender can sometimes move faster, offer a larger debt package or accept a more bespoke risk profile than a bank. That can be useful where timing is tight, the business is asset-light, EBITDA is growing quickly or the acquisition thesis depends on future add-ons.

For founders and management teams, private credit can reduce the amount of new equity required and limit immediate dilution. But the trade-off is leverage. Debt must be serviced, covenants must be complied with and lender controls may influence how the portfolio company operates after closing.

Where private credit sits in the capital structure

Private credit can take different forms. It may be senior secured debt, unitranche financing, second lien debt, mezzanine-style financing or a hybrid instrument with debt-like and equity-like features. The exact position in the capital structure determines risk, pricing, enforcement rights and flexibility.

In a Dutch PE transaction, the financing structure often sits alongside shareholder loans, management participation arrangements, rollover equity, acquisition vehicles and sponsor equity. That means the private credit terms must be aligned with the broader transaction structure.

The practical question is not only how much debt the company can raise. The more important question is how the debt package interacts with governance, future funding needs, add-on acquisitions, exits and downside scenarios.

Lender protections and covenants

Private credit lenders usually require a set of protections. These may include financial covenants, information rights, restrictions on debt, restrictions on distributions, limits on acquisitions, consent rights for material transactions, change of control provisions and default triggers.

For the lender, these protections are logical. The lender is providing capital without taking ordinary equity upside, so it needs downside protection and visibility on the business. For the sponsor or portfolio company, the issue is whether the controls are workable.

A covenant package that is too restrictive can slow down the investment thesis. A buy-and-build strategy may require rapid add-on acquisitions. A growth company may need flexibility to hire, invest, open new markets or absorb temporary margin pressure. If every material step requires lender consent, the company may become harder to manage.

Security rights in Dutch structures

Private credit in Dutch PE transactions is often supported by security rights. In Dutch structures, this may include pledges over shares, receivables, bank accounts, intellectual property rights, movable assets or intra-group claims. The security package may also include guarantees from group companies.

Dutch security rights require careful implementation. Share pledges and certain other security rights may need notarial involvement or specific formalities. Existing financing arrangements, shareholder loans, intercompany balances and contractual restrictions must be checked before the security package is finalised.

Security also affects future flexibility. If key assets, receivables or shares are pledged, future refinancings, reorganisations, add-on integrations or exit transactions may require lender cooperation. That is not necessarily a problem, but it should be understood when the financing is put in place.

Governance controls and reserved matters

Private credit is formally debt, but it can create governance effects similar to structured equity. Lenders may request consent rights over acquisitions, disposals, new debt, dividends, shareholder payments, changes to management, amendments to constitutional documents or material changes to the business.

These controls should be reviewed together with the shareholders’ agreement, articles of association and PE governance arrangements. If the sponsor has one consent framework, management has another and the lender has a third, decision-making can become complicated.

For Dutch portfolio companies, the key is alignment. Lender controls should protect the credit position without making ordinary-course management or agreed growth plans unworkable.

Buy-and-build and add-on acquisitions

Private credit is frequently used in buy-and-build strategies. The initial platform acquisition may be financed with a debt package that also contemplates future add-on acquisitions.

This can work well if the facility includes sufficient headroom, acquisition baskets and clear conditions for permitted acquisitions. It can become restrictive if each add-on requires a full lender approval process or if the leverage covenant leaves little room for integration costs and temporary performance volatility.

In Dutch buy-and-build deals, the financing documentation should be coordinated with the acquisition playbook. If the sponsor intends to execute multiple add-ons, the lender package should reflect how those add-ons will be sourced, financed, approved and integrated.

Refinancing situations

Private credit is also used in refinancing situations. A Dutch portfolio company may refinance bank debt, shareholder loans or earlier acquisition financing with a private credit facility. This can provide additional runway, support growth or simplify the capital structure.

Refinancing can also shift control. A new lender may require stronger reporting, more security, tighter covenants or restrictions on shareholder distributions. Existing shareholders and management should therefore assess not only the pricing of the refinancing, but also the operational and governance consequences.

Where refinancing is used to bridge underperformance or liquidity pressure, the terms may become more intrusive. Enhanced monitoring, cash control, milestones or amendment fees can materially affect the portfolio company’s flexibility.

Interaction with management and shareholder arrangements

Private credit should be reviewed against the full PE documentation package. Management participation, leaver provisions, shareholder loans, exit rights, dividend restrictions and reserved matters may all be affected by the debt package.

For example, a lender may restrict payments on shareholder loans or management incentive arrangements. A change of control clause may affect exit timing. Security over shares may influence drag-along mechanics. Restrictions on dividends may affect preferred return or shareholder economics.

These issues are often not visible if the finance documents are reviewed separately from the corporate documentation. In a Dutch PE deal, the financing package, shareholders’ agreement, articles and management participation terms should be read together.

Common mistakes in practice

A common mistake is focusing too much on pricing and leverage while underestimating operating flexibility. A lower margin is less valuable if the covenant package prevents the portfolio company from executing the investment plan.

Another mistake is leaving Dutch security implementation too late. If pledges, guarantees, corporate approvals or notarial steps are only addressed shortly before closing, financing execution can become a closing risk.

A third mistake is not aligning lender consent rights with shareholder consent rights. If the same action requires approvals from the board, investor majority, management shareholders and lender, decision-making can become slow and uncertain.

Practical conclusion

Private credit can be a useful tool in Dutch PE transactions. It can support buyouts, growth investments, refinancing and buy-and-build strategies, especially where speed and bespoke structuring matter.

But private credit should be analysed as part of the full transaction architecture. Lender protections, security rights, covenants and governance controls can materially affect portfolio company flexibility after closing.

For PE sponsors, founders and management teams, the key question is not only whether the debt is available. The more important question is whether the financing package supports the business plan without creating unnecessary friction for acquisitions, governance, refinancing or exit.

FAQ

What is private credit in a Dutch PE transaction?

Private credit is debt financing provided by non-bank lenders, credit funds or alternative capital providers. In Dutch PE transactions, it may be used for buyouts, growth investments, refinancing or add-on acquisition strategies.

Why do PE sponsors use private credit?

PE sponsors may use private credit because it can offer speed, larger or more flexible debt packages and bespoke terms compared with traditional bank financing. It can also support buy-and-build strategies or refinancing needs.

What security rights are common in Dutch private credit deals?

Security may include pledges over shares, receivables, bank accounts, intellectual property, movable assets or intra-group claims, often combined with guarantees from group companies. Dutch implementation formalities should be checked early.

How can private credit affect portfolio company flexibility?

Private credit can restrict flexibility through covenants, consent rights, security arrangements, reporting obligations, distribution restrictions, limits on acquisitions and default triggers.

Why should finance documents be reviewed with corporate documents?

Because lender protections may interact with the shareholders’ agreement, articles of association, management participation arrangements, shareholder loans, exit rights and PE governance framework.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer focusing on private equity, venture capital, Dutch BV governance and structured financing implementation. He advises investors, founders, management teams, sponsors and international counsel on Dutch transaction structures, shareholder arrangements, management participation and governance issues in PE and growth financing transactions.

Having studied at Cornell Law School, Dirk is familiar with how international investors and lenders approach private market transactions, while focusing on their practical implementation in Dutch BV structures.

Structuring a Dutch PE transaction, buy-and-build strategy or refinancing involving private credit?

Dirk de Waard advises on Dutch BV implementation, shareholder arrangements, security coordination, governance controls and transaction documentation affecting portfolio company flexibility. Contact dirk.dewaard@viottalaw.com to align the financing package with the acquisition structure, shareholder documentation and Dutch corporate implementation before signing or closing becomes time-critical.