Trends and regulatory climate
What is the current state of the lending market in your jurisdiction and have any new trends emerged over the last 12 months?
The Norwegian market has been affected by the downturn in the oil and oil service sectors over the past few years, concurrent with the fall in the oil price from above $110 per barrel of oil equivalent (BOE) in 2014 to below $30 per BOE in 2016, before stabilising at around $50 per BOE as of April 2017. The downturn has resulted in a massive need for debt renegotiations and restructurings over the past few years, while new lending in the oil and oil service sectors has been scarce. However, the downturn in the oil price also weakened the Norwegian currency; acquisitions from abroad (to a large extent with Norwegian-sourced acquisition financing) have therefore remained at a high level during the downturn in the oil sector (although the acquisitions have mainly taken place in other sectors, such as real estate and technology). The past few months have seen the first signs of consolidation in the oil service market, which will probably have to be divided between a few stronger players in order to return to an acceptable rate of profitability in a tougher environment going forward.
Is secured lending a regulated activity in your jurisdiction?
Yes, Norway has a licensing regime where promoting and carrying out lending locally in Norway or on a cross-border basis from a foreign country into Norway is not allowed without a licence granted by the Financial Supervisory Authority of Norway. Usually, foreign entities must therefore operate through a fully licensed subsidiary or a branch when doing business locally. As Norway is part of the European Economic Area (EEA), EU-licensed entities may ‘passport’ their licences from other EU jurisdictions into Norway. Further, lending into Norway on a reverse solicitation basis – where the initiative comes from the borrower and not from the lender – is considered acceptable, although this is not specifically regulated under Norwegian law. Norway has a large market for bonds (also in respect of secured bonds) and lending by way of purchasing bonds, notes and similar securities is not a regulated activity.
Are there any specific regulatory issues which a prospective borrower should consider when arranging or entering into a secured loan facility?
There are no particular licensing requirements for borrowers.
Are there any specific regulatory issues which a prospective lender should consider when arranging or entering into a secured loan facility?
Since Norway is a part of the EEA, Norwegian regulatory and legislative developments within the banking and financing sector are mainly in line with EU regulations (although the implementation may lag in certain areas).
Are there plans or proposals for reform or significant changes to the regulatory landscape in this area?
The EU Bank Recovery and Resolutions Directive (2014/59/EU) is expected to be implemented into Norwegian law in 2017. Further, as in EU jurisdictions, an issue of further assessment and focus is the United Kingdom’s exit from the European Union and its impact on international lending into Norway through the London market.
Structuring a lending transaction
Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)?
The main lenders in the Norwegian market are Scandinavian banks; Norway’s largest bank, DNB Bank ASA, is the largest player on the market and Swedish bank Nordea Bank AB (publ) is the second largest. Swedish banks SEB, Swedbank and Handelsbanken, mainly lending from their Norwegian branches, are also significant players; the same can be said for Danske Bank A/S, which also has a large branch in Norway. Specialising in the shipping and offshore sectors, banks such as ABN AMRO and DVB Bank have also been active on the Norwegian market. Other international banks are also commonly players in larger transactions, often as syndicate participants alongside Scandinavian banks. Non-bank financial institutions are active on the bond market, where no licence is required for lending.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?
Yes, Norwegian financing transactions of any considerable size are most often documented using Loan Market Association-based facility agreements. Bond transactions are based on the Nordic Bond Terms template published by Nordic Trustee ASA, which acts as bond trustee for most of the bond issuances made under Norwegian law.
Are syndicated secured loan facilities typical in your jurisdiction?
Yes, club lending and syndications are common in Norway.
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?
Yes, the Norwegian market works similarly to under English law. The deal is structured and negotiated by one or more mandated lead arrangers, one of which is also appointed to act as facility agent on behalf of all finance parties. The transaction can be syndicated with or without previous underwriting.
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?
Norwegian law does not recognise the concept of ‘trust’ as known in English law, but it is possible for one entity to hold security on behalf of itself as well as others. As such, the transaction security is held by a security agent appointed to act on behalf of all of the finance parties. The security agent can be one of the banks party to the transaction or an independent entity (eg, Nordic Trustee ASA, which is commonly appointed as security agent in combined bank and bond structures).
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?
SPVs are widely used in Norway to finance real estate, shipping and oil service units in order to ring-fence the asset being financed. For real estate, the use of SPVs has also developed for tax reasons. Lenders customarily ask for security over both the shares in the SPV and the asset owned by the SPV.
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?
Yes, bank loans in Norway are usually provided with floating interest rates and expressed with the relevant interbank offered rate plus a margin. For loans provided in Norwegian kroner, the Norwegian Interbank Offered Rate is the reference. Norwegian banks are also large lenders in euros and US dollars, as many of Norway’s largest businesses have export income in currencies other than kroner.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?
There are no such regulatory restrictions at present. It has been suggested that maximum interest rates be applied to retail banking, especially for lending to low-income households and with respect to credit card debt. However, as of April 2017 no such limits have been implemented and it is unlikely that maximum interest rates will be imposed on business lending.
Use and creation of guarantees
Are guarantees used in your jurisdiction?
Yes, guarantees are possible and common in Norwegian financing transactions.
What is the procedure for their creation?
A guarantee obligation is at the outset a legally binding agreement under Norwegian law, often stated as a one-sided promise to pay a named beneficiary. No formalities need be observed in order to create the guarantee, other than that it must be made in writing. However, guarantees may be subject to strict information undertakings both before inception and during the term of the guarantee in order to be valid on the guarantor. Most of these information requirements can be waived by written confirmation from the guarantor, although some are statutory and should be evidenced in writing when entering into the guarantee.
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?
In addition to the information undertakings mentioned above, Norwegian companies subject to acquisition – with certain exceptions for real estate companies – are not allowed to grant any financial assistance in connection with the acquisition of their shares. This means that debt push-downs and upstream guarantees and security from acquisition targets are not possible in Norway under the current rules. A proposal has been made to soften the strict Norwegian financial assistance rules in connection with acquisitions, although there is no clear timing yet as to when the rules may be changed.
Subordination and priority
Describe the most common methods of structuring the priority of debts and security.
Norwegian bank financing is commonly structured around first-priority security, while subordinated lending is often seen, but on an unsecured basis (eg, vendor loans granted in connection with acquisition financing). In bank and bond combined financing, a traditional structure is senior banks secured on first priority in an asset and bonds secured on second priority in the same asset.
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?
Only nominal fees are payable for registering security in Norway.
Is it more common for local law to govern the terms of the facility documentation or is the law of another jurisdiction often elected by the parties (eg, English law or New York law)?
Norwegian law is most commonly used as the governing law of facility documentation in Norway, even if a non-Norwegian bank is acting as facility agent. English law is used in some transactions, especially if arranged from the London market.
Are there any restrictions on the making of loans by foreign lenders or the granting of security or guarantees to foreign lenders?
There are no such restrictions (other than customary licensing requirements for granting the loans).
Are there any exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?
There are no such restrictions.
Security – general
Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?
No, this is generally not allowed; however, the effect can be more or less the same by using several security agreements covering various asset classes.
Release of security
What are the formalities for releasing security over the most common forms of assets?
Security registered in an official register must be released by submitting an annotation of deletion on the original deed registering the security in the first place, and thereafter filing the original including the deletion with the relevant register. Security holders must therefore keep track of the original deeds for later release, as the process of mortification for lost originals takes several months (it is a court-led procedure in order to ensure that the original is truly lost and not transferred to an uninformed third party).
Asset classes used as collateral for security
Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?
Yes, security can be granted over real estate. The security is registered with the Norwegian Land Register on its official deed template.
Machinery and equipment
Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Yes, floating charges can be registered in the Norwegian Movable Property Register on both machinery and plant (ie, operating assets) and inventory. Such security interest is created by way of floating charges on the standard template deed of the Norwegian Movable Property Register. Further, it is possible to register security over particular assets registered in other real registers which are organised by the specific items (eg, vehicles, aircraft and vessels).
Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Yes, security can be granted over receivables by two means:
- A floating security interest can be granted over trade receivables by way of registering a floating charge in the Norwegian Movable Property Register.
- A specific assignment of monetary claims may be obtained by way of notifying the relevant debtor of the claim that a specific assignment has been agreed over such monetary claim.
For both types of security, there is a requirement that the underlying receivable can be assigned or sold to a third party (which is the statutory position under Norwegian law, unless specifically agreed otherwise).
Financial instruments and cash
Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Yes, security can be created over all forms of financial instrument (eg, shares and bonds). The procedure may vary, although Norway has implemented the EU Financial Collateral Directive (2002/47/EC), which provides an effective mechanism for enforcement of financial security.
Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Yes, security over cash deposits is possible and common by way of charging a bank account. Unlike in some jurisdictions, it is not necessary to block the account in order to have a perfected security, meaning that the cash subject to security may be either a blocked cash depot or a floating charge over a bank account and all cash deposited into the account from time to time, freely available to the chargor until the security holder decides to block the cash following an event of default.
Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Yes, intellectual property is generally considered part of the operating assets of a business and is charged as part of the floating charge for operating assets. A separate security interest can be granted over patents and patent applications which have been registered in the Norwegian Patent Register.
Criteria for enforcement
What are the common enforcement triggers for loans, guarantees and security documents?
The most common enforcement criteria in Norway follow the Loan Market Association standard template, with an event of default having occurred and continuing and notice being served on the borrower to this effect.
Process for enforcement
What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?
This will depend on the type of security. The most effective security interest is in the form of cash or securities which may be appropriated quickly by notification to the debtor on breach of agreed terms for the security. Security over other asset classes is customarily subject to enforcement proceedings, as set out in statutory law with the assistance of the enforcement authorities.
Ranking in insolvency
In what order do creditors rank in case of the insolvency of a borrower?
A Norwegian bankruptcy estate of any party that has encumbered any of its assets as security for obligations owed has a statutory lien over any such pledged assets, as well as assets which a third party has encumbered as security for the obligations of the bankrupt party. The statutory lien has priority over all other liens or security interests in the relevant asset, regardless of whether such other liens or security interests have been created voluntarily or involuntarily. The statutory lien for the bankrupt estate is limited to 5% of the value of or sales proceeds for the encumbered asset; however, the statutory lien is limited to a maximum amount equal to 700 times the court fee (at present, NKr 734,300) in respect of any security registered in real registers which are organised by the specific items.
Other than the above, no statutory claims will prime a non-voidable security interest. Norwegian law provides detailed regulations as to the order of payments made with proceeds from the unsecured assets of a debtor during the bankruptcy proceedings.