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)?
Local and pan-Nordic banks are most active, but non-bank institutions such as direct lending funds are increasingly active, particularly in the leveraged finance space. International banks are active in certain segments, such as the real estate finance market. International banks also participate in large cap transactions and funding to large corporates. Institutional investors tend to participate through the public debt capital markets, but there has also been some activity by, for example, insurers in the direct lending space.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?
The Loan Market Association (LMA) recommended forms are widely used in Sweden (with adjustments for Swedish law aspects) in the investment grade and leveraged lending markets. Some real estate finance transactions are also documented based on the LMA recommended forms, but local standard bank templates are more prevalent. On bilateral transactions, a shortened version of the LMA forms is common.
Are syndicated secured loan facilities typical in your jurisdiction?
Yes, in respect of larger financings. Transactions below €100 million are normally done on a club basis.
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?
The mechanism provided for in the LMA forms is generally followed by appointing a facilities agent to carry out administrative duties (eg, payments and communication between the borrower and the lenders). Most agency appointments are given to banks with separate agency divisions and the capability to handle payments, but independent agency services are also available in the market.
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?
Trust is not a recognised concept in Sweden. The security is normally held by a security agent acting as a representative for the secured parties.
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 normally used only in pure asset-backed financings, such as aircraft financing and real estate financing. It is common for share security over the SPV to be obtained, as well as asset security over the assets 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?
Interest is commonly calculated through a reference rate. For Swedish krona, the reference rate is the Stockholm Interbank Offered Rate (STIBOR). As is common, reference bank rates are used when the benchmark rate for some reason is unavailable. In smaller, bilateral deals, a bank base rate is often used rather than the benchmark STIBOR rate.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?
In practice, there are no restrictions on the level of interest regarding commercial loans. The outer limits are when the loan interest rate is in fact usury, which is criminally punishable in Sweden. Unless stipulated in the loan agreement, default interest is payable at a statutory rate.
Use and creation of guarantees
Are guarantees used in your jurisdiction?
Yes, guarantees are common in Swedish secured (and unsecured) lending transactions.
What is the procedure for their creation?
There are no formal requirements, but guarantees are normally made in writing. It is common to include the guarantee in the loan agreement and to make the guarantor a party to the agreement. Separate guarantees – either unilateral or documented in an agreement – are also common if, for some reason, the guarantor will not be a party to the loan agreement.
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?
Yes, Swedish financial assistance restrictions are fairly strict and will apply to guarantees.
In general, a company may not grant loans or provide security or guarantees for loans granted to:
- a person who is a shareholder, director or managing director (including its respective relatives) of the company or another company within the same group of companies; or
- legal entities controlled by any such person.
There are a number of exceptions to this general restriction – the most widely used is when the entity whose obligations are being guaranteed is an entity within the same group as the company providing the guarantee. This exception also applies when the parent entity is a foreign legal entity similar to a company and domiciled within the European Economic Area.
However, even if such financial assistance falls within this exception, if it takes the form of security or guarantees, such security or guarantees must also comply with the Swedish transfer of value rules. Under those rules, a company must generally not undertake a transaction without deriving real and adequate corporate (commercial) benefit from it. Thus, when a company is providing security or a guarantee for a third party’s obligation, it must be considered whether the company gains any benefit from the transaction. A guarantee without sufficient corporate benefit may nonetheless be valid if the value of the guaranteed amount does not, at the time when the guarantee is provided, exceed the amount available for distribution by the company as dividends.
In addition, a company may not provide financial assistance, either by way of an advance, a loan or security, or guarantees for a loan granted to a debtor so that the debtor can acquire shares in the company or shares in its (direct or indirect) parent company or any other company placed above or at the same level as the company in the group structure. Consequently, a Swedish subsidiary may not normally guarantee debt incurred for the purpose of financing an acquisition by a parent company of a Swedish company.
The prohibition applies to financial assistance given before or simultaneously with the acquisition of shares, but not after the acquisition. Therefore, a loan, a guarantee or any other financial assistance provided after the acquisition, where the funds are used to pay for the acquired shares or repay financing incurred in connection with such acquisition, will not be prohibited. The period that must lapse between the acquisition and such financial assistance to avoid the prohibition is unclear and must be established on a case-by-case basis. However, to be on the safe side, the period should be at least three months.
No whitewash procedure is available under Swedish law.
Subordination and priority
Describe the most common methods of structuring the priority of debts and security.
In Sweden, contractual and structural subordination are common ways to ensure a certain priority order. On more complex leveraged finance transactions, an intercreditor agreement will regulate the priority of debts and security, while in lesser structured transactions, a short-form subordination undertaking or agreement may be used. Under the intercreditor agreement or subordination agreement the parties will contractually agree on a certain order of priority. The ranking of security is normally dealt with in the relevant security documents (ie, the security provider will grant first and second ranking security to certain creditors, either in the same security document or in separate security documents), and will be underpinned by the intercreditor or subordination agreement.
Structural subordination (ie, when the creditors lend to different entities in the corporate structure) is common on mezzanine transactions, although there has been a firm pushback from mezzanine lenders on structural subordination.
Intercreditor agreements have not been fully tested by Swedish courts, so there is uncertainty as to whether some of the provisions of standard intercreditor agreements will be upheld (in particular, release provisions in respect of subordinated debt). Further, in case of formal bankruptcy proceedings involving a Swedish company, the bankruptcy administrator can elect whether the estate will be bound by the 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 or documentary tax is payable in respect of granting a loan, entering into loan documentation or granting guarantees.
The issuance of a new mortgage certificate in respect of real estate attracts stamp duty of 2% of the amount secured (ie, the face value of the mortgage certificate).
The issuance of a business mortgage certificate attracts stamp duty of 1% of the amount secured.
Stamp duty is payable in respect of security over certain assets such as aircraft and ships.
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