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What types of debt securities offerings are typical, and how active is the market?
The domestic bond market in Sweden is still young compared with the international debt capital markets and accordingly is still relatively underdeveloped. It is characterised by two main types of debt securities offerings: Swedish medium-term note (MTNs) programmes and high-yield offerings but there is also a well-functioning market in domestic commercial paper programmes, structured products and a growing trend towards green bonds.
Domestic MTN programmes are often used by financial institutions, municipalities and real estate companies, and also offer larger domestic corporates (which may not yet have evolved to the stage of requiring the volume and size of deals required to enter the international debt capital markets) access to an additional source of funding, which is both comparatively cheap and quick to market. These companies will often establish a MTN programme for the issuance of relatively small drawdowns (under 2 billion kronor and often below 1 billion kronor). Such programmes are usually only set up to issue vanilla bonds and do not contain the complexity or scope of products that can be issued under international programmes. They will usually be listed on the regulated market of NASDAQ Stockholm and securities issued thereunder will be held through the Swedish clearing system, Euroclear Sweden.
The Swedish high-yield market is growing year on year as the number of issuers and size of issues grow and liquidity increases. The origins of the terms of such issues are found in bank finance transactions and until fairly recently maintenance covenants were common, although as issuers and investors have become more sophisticated, the majority of issues are now incurrence-based. These issues are generally wholesale products (with a minimum nominal amount of at least €100,000) and offered on a private placement basis to institutional investors. The securities are usually listed on the regulated market of NASDAQ Stockholm within up to a year of issuance, but are marketed without an approved prospectus. The terms and conditions of the bonds are generally based on a standard form published in 2012, and updated in 2015, by the Swedish Securities Dealers Association in collaboration with market participants. The covenant package is usually in a fairly standardised form, which is a simplified and abbreviated version of the covenant package that can be found in the international markets. However, this standard is beginning to evolve to reflect certain international style norms as the investor base becomes increasingly international. This market provides access to funding to smaller Swedish companies that do not need the size of financing required to create sufficient liquidity to issue in international markets and do not want to pay the relatively high transaction costs of such funding. It has also more recently become a useful source of acquisition financing for private equity houses active in the region requiring local currency and providing an alternative to the bank financing that has historically been relied upon by sponsors but has become more and more elusive over recent years owing to increased regulatory burdens. Refinancing of bank funding through bonds issued in the Swedish market has also become increasingly common in the leveraged market where the absence of a maintenance covenant can be very desirable for issuers experiencing unstable EBITDA levels during transitional periods.
The prospectus or base prospectus for such securities is usually fairly light in content and is, in principle, written in Swedish, although English is accepted for securities with a nominal amount of at least €100,000. The documentation is almost exclusively Swedish law governed and the securities are marketed primarily within Sweden and other Nordic markets, as well as to certain accounts in London, Luxembourg and the US, although the spread of investor interest is becoming wider all the time, including German accounts, among others, depending on the nature of the issuer.
The growth in the number and volume of new issues in the Swedish market increased rapidly in the years following the financial crisis. However, the boom in the international high-yield markets in 2014 was more muted in Sweden owing to the strengths of the six main Nordic banks which, unlike many other European banks, were able to maintain their credit lines and relationships with many of the Swedish corporates. The growth trend halted in 2015, as geopolitical and macro-economic turbulence led to a reduced volume of new issuance compared with 2014: according to NASDAQ Stockholm figures, there were 223 new corporate bonds admitted to trading on NASDAQ Stockholm in 2015 with a total value of 116.7 billion kronor, compared with 281 corporate bonds in 2014 with a value of 130.3 billion kronor, and 218 corporate bonds in 2013. In 2016, transaction volumes remained at similar levels with 222 new corporate bonds admitted to trading on NASDAQ Stockholm, whereof 23 were admitted to NASDAQ Stockholm’s newly established sustainable bonds market, with an aggregate value of 118.5 billion kronor. The Swedish market experienced a record year in 2017 with volumes exceeding previous full year totals by far: there were 292 new corporate bonds admitted to trading on NASDAQ Stockholm in 2017 with a total value of 168.6 billion kronor. In 2018, there was a further increase in both the number of issues and volume: with 300 new corporate bonds being admitted to trading (including 56 on the sustainable bonds market) with an aggregate volume of 184.8 billion kroner.
Describe the general regime for debt securities offerings.
As a member state of the European Union, Sweden has implemented Commission Regulation (EC) 809/2004 (the Prospectus Regulation) implementing Directive 2003/71/EC (the Prospectus Directive), which applies to public offerings in Sweden through the Swedish Financial Instruments Trading Act (1991:980) and the Regulatory Code of the Swedish Financial Services Authority (SFSA). In addition, the EU Market Abuse Regulation (EU) 596/2014 came into force in July 2016, and the Directive and the Regulation on markets in financial instruments (MiFID II/MiFIR) became effective in January 2018.
The competent authority for the purposes of the Prospectus Directive is the SFSA.
In addition to the Prospectus Directive framework, the Swedish Companies Act (2005:551), the Swedish Securities Market Act (2007:528), the Swedish Financial Instruments Accounts Act (1998:1479) and the Swedish Systems for the Settlement of Obligations on the Financial Market Act (1999:1309), inter alia, govern the offering and issuance of debt securities in Sweden.
The Swedish regulated market is the regulated market of NASDAQ Stockholm and the multilateral trading facility (MTF) is NASDAQ Stockholm’s First North Bond Market. The listing rules are set out in NASDAQ Stockholm’s Rule Book for Issuers and First North Bond Market’s First North Bond Market Rulebook. The Swedish clearing system, Euroclear Sweden’s rules for issuers are, inter alia, set out in its Rules for Issuers and Issuing Agents.
Filing and documentary requirements
General filing requirements
Give details of any filing requirements for public offerings of debt securities. Outline any requirements for debt securities that are not applicable to offerings of other securities.
In accordance with the Prospectus Directive, a prospectus (or base prospectus) relating to a public offer in Sweden must be approved by the SFSA and the contents must be in compliance with the Prospectus Regulation.
NASDAQ Stockholm requires, in addition to standardised undertakings and application forms:
- constitutional documents of the issuer;
- a prospectus approved by the SFSA;
- three years’ consolidated annual financial accounts, prepared in accordance with local requirements, to have been published by the issuer (if this requirement cannot be met, derogation may, however, be sought if NASDAQ Stockholm deems the information that is available sufficient for the purpose of properly assessing the offering);
- evidence of an appropriate website for the disclosure of regulatory information;
- information policy or statement on disclosure procedures;
- information about the issuer’s third-party news distributor;
- signed final terms and conditions; and
- marketing materials, if any.
Euroclear Sweden, the Swedish clearing system, requires, in addition to standardised affiliation agreements and forms:
- constitutional documents;
- financial accounts (the latest annual report of the issuer;
- information about the issuers bank account that will be connected to the Euroclear system. Such bank account must be affiliated with the Bankgiro system (Swedish banks are usually affiliated);
- a bank guarantee for 50,000 kronor from a Swedish bank or Swedish branch of an international bank (depending on the outcome of Euroclear’s issuer review); and
- in relation to non-Swedish issuers only, a legal opinion on, inter alia, the validity and enforceability of the affiliation agreement under the laws of the issuer’s jurisdiction of incorporation, as well as a US law opinion on US source income.
Furthermore, Euroclear Sweden requires the original documents to be provided prior to executing the affiliation agreement.
In a public offering of debt securities, must the issuer produce a prospectus or similar documentation? What information must it contain?
As referred to above, public offerings in the Swedish market will require the approval and publication of a prospectus produced in compliance with the Prospectus Directive and the Prospectus Regulation. Accordingly, the prospectus will be required to comply with the requirements relating to the specific type of debt security and the type of issuer involved, as set out in the annexes to the Prospectus Regulation.
Public offerings may also be made under an approved base prospectus in relation to domestic MTN issuance, which allows issuers to issue listed debt securities regularly within a one-year period after approval without producing a new prospectus for each series of debt securities, although approved supplements may be required to update the market on periodic financial information and other key events. Under an MTN programme, the filing of a final terms document with the competent authority is sufficient and no approval is required.
The overarching principle, however, is that the prospectus should contain all information that is necessary to enable an investor to make an informed assessment of the assets and liabilities, financial position and prospects of the issuer (and, to the extent relevant, any guarantors) and the debt securities themselves.
Describe the drafting process for the offering document.
In the Swedish market, domestic MTN programme base prospectuses are relatively brief and often do not go beyond the strict requirements of the Prospectus Regulation. In most cases, this will be drafted by the issuer’s counsel in combination with the issuer, with input from the financial institutions involved in the process. Much of the information is based on the annual report of the issuer along with limited due diligence, which may serve to extend the risk factors from those contained in the annual report. The issuer and its board of directors must take full responsibility for the prospectus.
As regards the offering documentation for private placements, debt securities can be sold on the basis of a term sheet; however, the prevailing practice is to combine a term sheet with, at the very least, a set of risk factors. In most cases, the issuer, in conjunction with the placement agent, will produce an investor presentation and in some cases an information memorandum with a more detailed description of the issuer. The risk factors in private placements, particularly in the high-yield market, are more extensive than in investment grade deals and will be the result of the issuer and its counsel drafting the risks together, combined with an in-depth review by the placement agent and its counsel in the light of the results of their financial and legal due diligence.
In either case, there is no strict legal guidance on what is or is not considered material in the context of the issuance; issuers must make their own assessment as to what the materiality threshold should be. This depends on many factors including the size and nature of the issuer itself. However, in accordance with the Prospectus Regulation, there are different levels of disclosure required depending on whether the debt securities to be issued are wholesale (with a nominal amount of at least €100,000) or retail securities (with a nominal amount under €100,000).
Which key documents govern the terms and conditions of the debt securities? Who are the parties to such documents? How can such documents be accessed?
The terms and conditions of the debt securities is the key document that includes the entirety of the provisions governing an issue of debt securities including, inter alia, the repayment and prepayment terms, the covenants of the issuer, the events of default, provisions as to any security package and the acceleration and enforcement procedures, as well as the role and protections of the bond agent (acting on behalf of the bondholders) and the process for decisions to be taken by holders of the securities. There is no separate indenture or trust deed under the Swedish law documentation and, accordingly, the debt securities are effectively constituted by the terms and conditions themselves.
The parties to the terms and conditions are the issuer and the bond agent. The bond agent represents the interests of the security holders and is authorised to take certain decisions and make certain determinations on their behalf, but generally will consult the holders of the securities in the event that a decision of any real significance to the interests of the holders needs to be taken. The bond agency role is contractually established and not specifically provided for under Swedish law. In order to be able to act on behalf of the security holders, security holders must issue a power of attorney in favour of the bond agent. At the inception of the Swedish debt capital markets, there was little harmonisation between the terms and conditions used for issues of debt securities. However, in 2012, following consultation with a number of market participants, the Swedish Securities Dealer’s Association formulated a standard-form Swedish law terms and conditions document, which contains the technical details of bond issues and is silent on the commercial terms such as the covenants and the events of default. This standard form, which was updated in October 2015, is now used as the basis for the majority of issues of standalone debt securities in Sweden.
Does offering documentation require approval before publication? In what forms should it be available?
As previously mentioned, the majority of issues are carried out either under listed programmes or private placements. In the case of the former, the base prospectus must be approved by the SFSA prior to publication and listing. In the latter case, approval is only required for the listing prospectus prior to listing of the debt securities which generally takes place following issuance, but any investor presentation or information memorandum presented to potential investors at the time of the offering does not require approval by the SFSA.
In accordance with the Prospectus Directive, the base prospectus or prospectus, as applicable, once approved must be published on the SFSA’s website and on the issuer’s website.
Are public offerings of debt securities subject to review and authorisation? What is the time frame for approval? What are the restrictions imposed, if any, on the issuer and the underwriters during the review process?
Domestic public offerings are rare in Sweden but other than the requirement to approve the base prospectus (and any supplements thereto) in relation to MTN programmes or the prospectus in relation to standalone issues, no authorisation is required.
Approval of the prospectus may typically be expected within 20 business days of submission of a substantially complete prospectus for a debut issuer or 10 business days for a repeat issuer. Publication of the prospectus or offering of the debt securities in the context of a public offering is strictly prohibited prior to obtaining the approval of the SFSA, in line with the provisions of the Prospectus Directive.
In addition, both the issuer and the securities must be affiliated to NASDAQ Stockholm for the purposes of the listing, as well as Euroclear Sweden for the purposes of clearing. The NASDAQ process can take up to 10 business days and Euroclear Sweden’s up to three weeks, in each case depending on the timely availability of the required information.
On what grounds may the regulators refuse to approve a public offering of securities?
Regulators may refuse to approve a public offering of securities on the grounds of:
- not meeting the requirements of the Prospectus Directive, the SFSA’s rules for issuers or the stock exchange’s listing requirements;
- not being compliant with applicable laws and regulations; or
- the issuer or the issuer’s debt instruments being deemed unsuitable for listing by NASDAQ Stockholm, despite the fact that the issuer and the debt instruments fulfil all of the listing requirements.
To have its debt securities admitted to trading on NASDAQ Stockholm, an issuer must be a public limited company and have a registered capital of at least 500,000 kronor (or the equivalent thereof in any other currency).
Although NASDAQ Stockholm generally does not impose any restrictions as to the currency denomination of debt securities, Euroclear Sweden will only accept kronor or euro-denominated bonds. It may be noted that listing on NASDAQ Stockholm does not require clearing through Euroclear Sweden, however, and clearing Swedish law bonds through the Verdipapirsentralen (VPS) system in Oslo is becoming more frequent given the complications and timing implications of affiliating international issuers to Euroclear Sweden’s system.
How do the rules differ for public and private offerings of debt securities? What types of exemptions from registration are available?
The requirements of the Prospectus Directive only apply to securities that are the subject of a public offer or are listed on an EU-regulated market. Accordingly, an unlisted, private placement (or one that is listed on First North Bond Market) will not be required to produce a Prospectus Directive-compliant prospectus.
Listings on First North Bond Market will require a listing document to be produced and the contents requirements of First North Bond Market’s listing rules are less onerous than those of the Prospectus Directive itself.
Safe harbours from the public offer regime under the Prospectus Directive are as follows:
- offers addressed to qualified investors only;
- offers addressed to fewer than 150 persons (other than qualified investors) in a single member state;
- offers of securities with a denomination per unit of at least €100,000;
- offers of securities for a total consideration of at least €100,000 per investor; or
- offers for a total consideration of less than €5 million over a 12-month period.
Describe the public offering process for debt securities. How does the private offering process differ?
As previously mentioned, public standalone offers are rare in the Swedish market and the timeline would be very similar to a public offer in any other EU jurisdiction, except that, as mentioned above, the review period for the prospectus may well be shorter and more predictable in a number of other jurisdictions. Accordingly, the time frame for a new issuer would be likely to be close to two to three months, while a repeat issuer could rely on a one-month period to market. In relation to a private offering, a prospectus is not required prior to listing and the time to market will therefore be one to two months, depending on the nature of the issuer and the complexity of the transaction.
The Swedish market is very documentation-light and the documentation for a stand-alone issuance usually consists of a short-form dealer agreement, standard-form agency agreement, the terms and conditions of the bonds and an investor application form. Private placements will use the same documentation (with potentially fewer protections for the participants).
Marketing is based on a preliminary prospectus and investor presentation. Pre-sounding is common in this market for both public and private transactions. Private offers may rely on an unverified investor presentation and in some cases an information memorandum (not approved by the SFSA) in the marketing phase, with listing and an approved listing prospectus not coming until after issuance within up to a year of the issue date.
The key parties in a public deal in Sweden are as follows: issuer; placement agents; issuing agent (usually one of the placement agents); bond agent (equivalent of the trustee or fiscal agent in international transactions); and law firms (historically one transaction counsel, more recently becoming one counsel for the issuer and one for the arrangers and the agent).
What are the usual closing documents that the underwriters or the initial purchasers require in public and private offerings of debt securities from the issuer or third parties?
Swedish practices are becoming more international all the time, and while deals were originally carried out without any placement agent protections other than in some cases a single limited legal opinion from counsel, there is more emphasis on some form of agreed-upon procedures letter from the auditors assuring the accuracy of an investor presentation, but not stretching to a full International Capital Market Association standard comfort letter in private placements (as the prospectus is rarely in place on issue).
The conditions precedent are contained in the terms and conditions and will often depend upon whether an investment bank, as opposed to an independent broker, is placing the transaction.
Standard conditions precedent include:
- corporate authorisations;
- a statement of responsibility (given by the board of the issuer);
- a declaration of completeness (given by the issuer), including the indemnity to the placement agents;
- a closing certificate; and
- security documentation for secured transactions (or an escrow account arrangement is put in place to allow the issuer time to put the security in place, upon which time the proceeds of the issue are released to the issuer).
Recently, local investment banks are becoming more aware of the risks involved and requiring greater protections but seldom to the extent seen in international markets.
Official ratings are rare in Swedish non-public deals. The cost is often prohibitive for the smaller Swedish bonds. Traditionally, investment banks placing the offering would use their own research function to provide ‘shadow ratings’ as opposed to relying on one of the international rating agencies. However, recent ESMA guidance has questioned the use of such shadow ratings and all Nordic banks have ceased to provide such services while the effect of the guidance is considered.
What are the typical fees for listing debt securities on the principal exchanges?
Corporate bonds are subject to an annual fee starting at 50,000 kroner for the first year and decreasing annually to 1,000 kroner by the fifth year per International Securities Identification Number (ISIN). A 500,000 kroner maximum annual fee applies to each issuer. Retail bonds are subject to an admission fee of 10,000 kronor plus an annual fee of 40,000 kronor per ISIN. In each case, the annual fee is payable annually in advance. In addition, bonds issued under a euro MTN programme are subject to a 25,000 kronor one-time fee per ISIN.
NASDAQ First North Bond Market
Wholesale bonds are subject to an admission fee of 15,000 kronor plus an annual fee of up to 30,000 kronor (depending on the issue size). All other bonds are subject to an admission fee of 24,000 kronor plus an annual fee of up to 40,000 kronor (depending on the issue size). In each case, all fees are payable as a one-off fee paid up front at the time of admission to trading.
In addition, the fee for approval of a prospectus by the SFSA amounts to 35,000 kronor.
Special debt instruments
How active is the market for special debt instruments, such as equity-linked notes, exchangeable or convertible debt, or other derivative products?
There is an active market for special debt instruments in Sweden, especially in relation to covered bonds. NASDAQ Stockholm launched sustainable bonds markets on the main market and on the First North market, reflecting an increasing interest in debt securities such as ‘green bonds’. Following the strong growth of the sustainable market, NASDAQ expanded the offering in 2018 by launching new market segments for sustainable commercial paper and sustainable structured products. These segments currently have 13 listed commercial paper issues and 12 structured products. NASDAQ Stockholm has more than 4,000 listed structured products including auto-call and equity-linked notes. However, convertible and hybrid bonds remain rare.
What rules apply to the offering of such special debt securities? Are there any accounting implications that the issuer should be aware of?
The Prospectus Directive generally applies to the offering of special debt securities. Hence, offerings of special debt securities to the public or their admission to trading on a regulated market require approval and publication of a prospectus, unless an exemption applies.
In relation to covered bonds, the Swedish Act (2003:1223) on Issuance of Covered Bonds also applies.
As regards the accounting treatment of special debt instruments, traded on a registered market, applicable accounting standards would apply at the time the debt instrument is registered or an application for registration has been made. The derivatives are in principle accounted for at mark-to-market.
What determines whether securities are classed as debt or equity? What are the implications for instruments categorised as equity and not debt?
SFSA classification is based on the Prospectus Directive classification and, from an accounting perspective, IFRS or Swedish GAAP classification would apply. The specific terms and conditions applicable to the securities are central to the determination of the classification.
Transfer of private debt securities
Are there any transfer restrictions or other limitations imposed on privately offered debt securities? What are the typical contractual arrangements or regulatory safe harbours that allow the investors to transfer privately offered debt securities?
There are no specific rules under Swedish law or regulation restricting the transfer of privately issued debt. However, if debt securities that were initially only sold to qualified investors are subsequently allocated or transferred to retail investors, such transaction may be considered a ‘retail cascade’ and would, therefore, be subject to the public offering regime. As such, the EU-wide regulatory regime would be applied in Sweden largely as it would in other EU member states.
Are there special rules applicable to offering of debt securities by foreign issuers in your jurisdiction? Are there special rules for domestic issuers offering debt securities only outside your jurisdiction?
Foreign issuers issuing securities within the Swedish market are required by Euroclear Sweden to provide legal opinions issued by legal counsel of the relevant jurisdiction and must be public companies in order to be able to issue bonds under Swedish law.
There are no specific requirements on domestic issuers issuing debt securities outside Sweden (other than those contained in applicable EU law (eg, Prospectus Directive, Transparency Directive)).
Are there any arrangements with other jurisdictions to help foreign issuers access debt capital markets in your jurisdiction?
A prospectus approved by the competent authority of an EEA member state can be passported into any other EEA member state for the purpose of a public offering or an admission to trading without any further approval process, subject to certain requirements set out in the Prospectus Regulation.
On a general note, the nature of the Swedish market allows access to greater liquidity for other Nordic issuers, and the acceptable issuance size (from approximately 300 million kronor) and comparatively light documentation enables foreign issuers to access the market with significantly less upfront cost for much smaller amounts than the international markets.
What is the typical underwriting arrangement for public offerings of debt securities? How do the arrangements for private offerings of debt securities differ?
Hard underwriting of issues of debt securities is rare in the Swedish market. Issues are generally placed through financial institutions or placement agents without any underwriting commitments. Accordingly, such placement agents benefit from a less rigorous liability regime and can therefore be comfortable with fewer protections on issuance. This is particularly the case for private placements where there is generally no underwriting commitment at all.
How are underwriters regulated? Is approval required with respect to underwriting arrangements?
Outside of MiFID II, bond arrangers and financial advisers are regulated through the Securities Market Act (2007:528) and generally require authorisation by the SFSA. Financial institutions, such as underwriters, are regulated and monitored by the SFSA.
What are the key transaction execution issues in a public debt offering? How is the transaction settled?
The key transaction execution issues in debt offerings in Sweden are relatively limited as there are often far fewer conditions precedent to settlement and listing is carried out at a later stage. The common issues that are problematic in a Swedish settlement process include registration with Euroclear Sweden, which can be particularly problematic for non-Swedish issuers since Euroclear Sweden may demand an on-demand bank guarantee issued by a Swedish bank (depending on the outcome of Euroclear Sweden’s review of the issuer) and will require a legal opinion by legal counsel of the issuer’s jurisdiction in Euroclear Sweden’s standard format as well as a US source income opinion. The period between pricing of the securities and settlement is often longer in the Swedish market than in the international markets as there is seen to be less transaction risk in the smaller Swedish market. Settlement itself is a very short process as there are very few conditions precedent to be satisfied and no global securities to be physically executed/delivered.
As mentioned below, debt securities are in dematerialised form and there is no global or individual certificate or note. Accordingly, there is no depositary and holdings are evidenced through the electronic register of Euroclear Sweden.
Settlement is typically done two or three business days after the trade date, but can extend up to five days or longer after the trade date, predominantly depending on the type of issue, although, as mentioned above, the net proceeds of the issue are often placed into escrow upon closing in stand-alone issues until the issuer is able to satisfy any remaining conditions precedent including for example the security take up.
In the context of bond issues being used to refinance existing debt, there are a number of technical considerations that must be taken into account, such as Euroclear’s specific settlement procedures, which can lead to complications on a secured financing or where an escrow account is used.
How are public debt securities typically held and traded after an offering?
Swedish law-governed debt securities are issued in dematerialised book-entry form and are cleared through Euroclear Sweden. Under Swedish law, there is no concept of a bearer or registered global note. Interests are evidenced purely through the entry on the electronic register of Euroclear Sweden. Trading takes place through Euroclear Sweden’s systems.
Outstanding debt securities
Describe how issuers manage their outstanding debt securities.
Liability management is carried out by the same methods as in most European markets; namely, through a combination of market repurchases, public tenders, exchange offers as well as consent solicitations, which are regularly pursued by issuers as terms of high-yield transactions, are often closer to the terms of bank financings and consent is required more regularly than in other established markets.
The consent procedure is governed by the terms and conditions of the bond and is largely standardised in Swedish issues. The procedure is similar to other European markets except that the bond agent must notify each holder listed on the register by post and receive individual responses from those accounts, which can affect the timing of the consent procedure.
Regulation and liability
Are there any reporting obligations that are imposed after offering of debt securities? What information would be included in such reporting?
The widely used standard form Swedish terms and conditions include information undertakings including the provision of annual financial statements within a specified period of the financial year end as well as semi-annual and, in some cases, quarterly reporting. Compliance certificates are common in connection with incurrence of indebtedness (in the case of incurrence-based covenants) or periodically (in the case of increasingly less common maintenance-based covenants).
Following the listing of debt securities on NASDAQ Stockholm, the continuing obligations applicable under MAR will apply to the issuer. These include, inter alia, the following:
- the obligation to disclose inside information;
- rules regarding delayed disclosure;
- the reporting of transactions by persons discharging managerial responsibilities (and persons closely associated with them); and
- unlawful disclosure of inside information.
MAR also governs the requirements and standards relating to:
- insider lists;
- market manipulation;
- market soundings;
- buy-back programmes;
- stabilisation measures; and
Describe the liability regime related to debt securities offerings. What transaction participants, in addition to the issuer, are subject to liability? Is the liability analysis different for debt securities compared with securities of other types?
Under the Companies Act, the members of the board of directors of a company issuing public debt are personally liable for the contents of an approved prospectus. This does not apply to non-approved prospectuses such as those used on First North Bond Market or non-approved information memoranda used in the course of marketing an offering.
Accordingly, prospectuses published by Swedish issuers must contain a responsibility statement by the board of directors that the information contained in the prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its substance. Pursuant to the Prospectus Directive, the issuer is required to take full responsibility for the contents of the prospectus and therefore must itself make the same statement in the prospectus.
Proposals were made in 2013 to remove the direct liability of the board of directors for the contents of the prospectus from the Companies Act; however, there is still no certainty whether the proposals will become effective.
Liability may also be established under the Tort Liability Act. In this case, any potential liability is governed by general principles of Swedish law relating to damages for pure economic loss. A general prerequisite for such liability in the event of a non-contractual obligation is that the damage is caused by, for example, the director(s) committing a criminal offence in connection with the preparation of the prospectus (such as fraud or deception under the Swedish Penal Code). In addition, although it has never been tested in court, prospectus liability may also arise as a result of negligence (ie, where there is no underlying criminal offence). The validity of such claim is, however, uncertain under Swedish law.
The Penal Code may also attach to those participants in the offer:
- to the extent that knowing disclosure of misleading information or omission of material information in the offering material, which is intended to impact the price of the securities, is seen to constitute fraud on their part; or
- if a person intentionally, or through gross carelessness, publishes or otherwise disseminates misleading information to influence the assessment of the issuer from a financial point of view and thereby causes damage (swindling).
The same liability would apply to the participants in an issue of any other form of security in the Swedish market.
What types of remedies are available to the investors in debt securities?
In addition to claims for losses incurred by breaches of the above provisions of Swedish law (see question 26), debt securities will generally provide for events of default within the terms and conditions of the security. These events of default differ in the extent of their coverage, generally dependent on the creditworthiness of the issuer, but in each case (subject to grace periods, etc) the occurrence of an event of default will give holders of the security (or a specific proportion thereof) the right to instruct the agent to accelerate the debt securities early. Failure to pay principal or interest under the debt securities will then give the holders the ability (through the agent) to enforce any security provided in relation to the transaction or bring a claim in Swedish courts against the issuer (and any guarantors, if applicable) for repayment of the moneys owed to them.
What sanctioning powers do the regulators have and on what grounds? What are the typical results of regulatory inquiry or investigation?
Regulatory inquiry or investigation has been very rare in the Swedish market, therefore, it is difficult to assess what are the typical results thereof, although the regulators have the power to warn listed entities as regards, for example, their compliance with continuing obligations and ultimately have the power to delist the securities.
The stock exchanges are responsible for monitoring issuers to ensure that they comply with the applicable provisions regarding the disclosure of periodic financial information and other price-sensitive information, and the SFSA in turn performs monitoring of the stock exchanges to ensure that they fulfil their obligations under MAR. If the issuer fails to comply with the disclosure obligations, the SFSA can request that the issuer corrects this and combine the request with a penalty if the issuer does not correct the breach.
If the periodic financial information is not prepared in accordance with the provisions applicable to the relevant issuer, the SFSA shall issue a caution, although a caution shall be waived if the breach is negligible or excusable. If the decision is made to issue a caution, the SFSA may decide to issue an administrative fine of a maximum of €10 million, 5 per cent of the revenue, or twice the profit that was acquired or the costs that were avoided through the violation. The SFSA may also decide to charge a member of the issuer’s board of directors or the chief executive officer an administrative fine.
If there is reasonable cause to believe that an offer of transferable securities or an admission of transferable securities to trading on a regulated market is in breach of the applicable provisions, the SFSA may provisionally ban the offer or the admission to trading. Such a ban may apply for a maximum of 10 days. If a provision of the law or of the Prospectus Regulation has been breached, an offer of transferable securities to the general public may be permanently banned. The SFSA has the right to fine a party that does not apply for approval of a prospectus or supplement when there is such an obligation. In order to establish a clearer link to the seriousness of the misconduct, the size of the fine is determined by the value of the issue. A fine shall also be charged if the company has prepared a prospectus or supplement, but has not complied with the requirements for the publication of the prospectus or the supplement. For this type of breach, the value of the company is used as a basis for calculating the fine. The fine shall amount to a minimum of 50,000 kronor and a maximum of 10 million kronor. The size of the fine is determined by the nature and scope of the breach.
In the event of a failure by an issuer to comply with law, other regulations, NASDAQ Stockholm’s rules or generally acceptable behaviour in the securities market, NASDAQ Stockholm may, where such violation is serious, resolve to de-register the issuer’s debt securities or, in other cases, impose on the issuer a fine of a minimum of 100,000 kronor and a maximum of 5 million kronor. Where the non-compliance is of a less serious nature or is otherwise excusable, NASDAQ Stockholm may issue a reprimand to the issuer in lieu of imposing a fine.
In relation to underwriters, if an underwriter has breached its obligations pursuant to the Securities Market Act, other statutory instruments that govern the undertaking’s operations, the undertaking’s articles of association, or statutes or rules or internal instructions that are based on legislation that governs the undertaking’s operations, the SFSA shall intervene and issue an order to the underwriter to, within a specific time:
- limit or reduce the risks of the operations in some respect;
- limit or preclude in full payment of dividends or interest, or take measures to rectify the situation;
- issue an injunction against executing resolutions; or
- issue an adverse remark.
If the infringement is serious, the underwriter’s licence can be revoked or, where sufficient, a warning can be issued.
What are the main tax issues for issuers and bondholders?
Value added tax (VAT)
There is no VAT on the transfer of bonds or the interest payments made on bonds.
Sweden does not levy withholding tax on interest on bonds (except on interest payments to Swedish tax-resident private individuals or Swedish tax-resident estates of deceased individuals).
Sweden does not levy registration tax, stamp duty or any other similar tax or duty on bonds.
Corporate income tax
In general, Swedish taxation of corporate bondholders may be limited under applicable double tax treaties. The following is a description of Swedish law only.
If a bondholder is a Swedish tax resident, it is generally subject to corporate income tax on income on bonds at a rate of 21.4 per cent annually (2019).
If a bondholder is not a Swedish tax resident, it will only be subject to corporate income tax if the bonds are effectively connected to a permanent establishment of the bondholder in Sweden.
Personal income tax
In general, Swedish taxation of individual bondholders may be limited under applicable double tax treaties. The following is a description of Swedish law only.
If an individual bondholder is a Swedish tax resident, the income tax treatment of the bonds is as follows: if the bonds qualify as a portfolio asset under the rules on investment savings accounts or endowment insurance, special rules may apply; in all other cases, income on the bonds is taxed as capital income (interest and capital gains upon sale or redemption) at the rate of 30 per cent.
If an individual bondholder is not a Swedish tax resident, no Swedish income tax will be due on income on the bonds unless the bonds are effectively connected to a permanent establishment in Sweden.
Wealth, inheritance and gift tax
Sweden does not levy any tax on wealth, gifts or inheritances.
Exchange of information
Sweden and the United States have concluded an intergovernmental agreement to implement the tax reporting and withholding procedures associated with the Foreign Account Tax Compliance Act. Under this intergovernmental agreement, financial institutions (FIs) that are resident of Sweden (and their FI affiliates) will be required to comply with the US-Sweden intergovernmental agreement account documentation and reporting requirements and provide the Swedish Tax Agency with this information.