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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 usual mix of lenders is present in Romania. While international and multilateral development banks generally look for larger tickets, local banks aim to cover all segments of the market. Non-bank financial institutions are also active in secured finance and there are limited alternative lenders as well.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions? There is no generally recognised Romanian law standard facility documentation (eg, similar to Loan Market Association (LMA) standards). Depending on the size and type of the transaction, lenders usually prefer either internally developed standard documents for bilateral loans and small deals or LMA-style facility agreements for syndicated or club loans.
Syndication Are syndicated secured loan facilities typical in your jurisdiction? Large Romanian companies have access to syndicated facilities (or club loans). However, in view of the usual size of Romanian companies, syndicated facilities are not as common as in developed or emerging markets.
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? For syndicated facilities, the usual agency structure is used to appoint the facility agent. With regard to the security agent, several structures are used in practice, including:
- the joint creditorship between lenders structure, which enables the lender that is designated as security agent to enforce all claims of the syndicate against the borrower and the other obligors;
- the agency structure, under which the syndicate appoints the security agent to act as its attorney in fact in relation to the guarantees and security interests (this structure in particular is recognised by Romanian law for moveable mortgage agreements); and
- the parallel debt structure for foreign law-governed facility agreements, under which the borrower and the other obligors undertake towards the security agent to make all payments due to all lenders, but without affecting the rights of the lenders (although this has sometimes been assimilated to joint creditorship in relation to Romanian law guarantees and security interests).
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? Romanian law recently recognised a concept similar to a trust – the fiducia. Unfortunately, the creation of a fiducia is onerous (involving special forms and various registrations and raising certain tax issues) and, as such, it has rarely been used in practice for taking security. Thus, in syndicated facilities security agents are more common than security trustees.
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? For real estate and project finance transactions, it is common for financed assets to be held by SPVs. Security is generally taken over the shares in the SPV and the assets being financed, together with all other assets of the SPV (eg, immoveable assets, bank accounts and receivables).
For a standard acquisition financing structure, in the first stage there is a security interest over all shares in the target, created by the SPV holding the target, and a security interest over all present and future moveable assets of the same holding SPV; following a debt pushdown (by way of merger between the target and its holding SPV), there are additional security interests over all moveable and immoveable assets of the merged target and holding SPV.
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? The interest rate is generally calculated by reference to:
- the Romanian Interbank Offer Rate for leu-denominated facilities;
- EURIBOR for euro-denominated facilities; and
- LIBOR for US dollar-denominated facilities.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans? In general, there are no regulatory restrictions. However, with regard to default interest, a law intended to combat late payments in commercial transactions provides that abusive clauses – for example, whereby the parties establish a default interest lower than the legal default interest (ie, the legal interest set by the National Bank of Romania plus eight percentage points) – are penalised with absolute nullity.
Use and creation of guarantees Are guarantees used in your jurisdiction? Yes, guarantees are generally used in Romania.
What is the procedure for their creation? Guarantees may be granted by means of a private deed or included in the facility agreement. No registration is necessary (with the exception of applicable corporate approvals).
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)? Under Romanian law, there are several limitations that a lender should bear in mind when structuring guarantees granted by other members of the borrower’s group (and even third parties). These also apply to security interests.
First, as in other jurisdictions, financial assistance is prohibited in Romania. While the prohibition appears to be aimed at joint stock companies, it has been contended that it should also apply to limited liability companies.
Second, a guarantor should have a certain corporate benefit in relation to any guarantee granted to support liabilities of third parties. While there are no specific legal provisions setting out what constitutes an adequate corporate benefit for a company, the assessment should be undertaken by the management of the guarantor on a standalone basis, but may take into account the entire transaction and even the group relationship (although Romanian law does not recognise group benefit). In practice, a guarantee fee is often payable to the guarantor in order to mitigate corporate benefit concerns in relation to upstream or cross-guarantees to a certain extent.
Additional general company law limitations apply, including:
- a prohibition against distribution of dividends in advance (if a guarantee would be deemed as such);
- a prohibition against misuse of the guarantor’s assets; and
- in relation to guarantees granted by joint stock companies, a prohibition against guaranteeing loans of directors or companies where such persons (or their spouses or relatives up to the fourth degree) are directors or shareholders of more than 20% of the share capital.
Breach of these rules will render the guarantee null and void and may even trigger criminal liability in certain conditions.
Finally, under Romanian law a guarantor should hold and maintain sufficient assets in Romania to cover the secured liabilities. However, there is a carve-out to this requirement – in particular, if the lender requests that a specific person act as guarantor (which is the rule in practice).
Subordination and priority Describe the most common methods of structuring the priority of debts and security. Romanian law provides for both the structural priority of liabilities (secured versus unsecured) and contractual priority, which is usually established by means of a subordination or intercreditor agreement.
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 stamp duty, registration duty or similar charge in connection with the granting and enforcement of finance documents is payable under Romanian law, with the exception of:
- court and enforcement fees for proceedings in relation to the finance documents;
- fees payable to the Electronic Archive (including the operator of the Electronic Archive) and any other public register for registration of the security documents;
- fees payable for the authentication by a notary public of an immoveable mortgage agreement;
- fees payable to the relevant land books for registration of an immoveable mortgage agreement; and
- fees payable to a certified translator and notary public in connection with notarised translations into Romanian of the finance documents, if applicable.
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