General structuring of financing
Choice of law
What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?
In relation to transactions where most of the entities involved are Swedish, transaction agreements are typically governed by Swedish law. However, in larger transactions, where foreign lenders are involved or where it is otherwise deemed preferable by the parties, the credit agreement may be governed by foreign laws. Pursuant to Swedish law, the parties are generally free to choose the governing law of an agreement and Swedish courts generally also recognise foreign laws chosen by the parties in accordance with the Rome I Regulation ((EC) No. 593/2008) on the law applicable to contractual obligations.
Security agreements may be subject to different choice-of-law principles and rules, depending on the relevant security asset. For example, security agreements in respect of shares in Swedish companies are typically subject to Swedish law on the basis of the lex rei sitae principle. However, depending on the circumstances, it may be possible to create security over shares in a Swedish company under foreign laws (although this is unusual), provided that the security agreement is carefully drafted and that the Swedish law perfection requirements are complied with in order to create a valid and enforceable security interest.
The Swedish courts would recognise and enforce a judgment given in any jurisdiction which is a contracting party to the recast Brussels Regulation ((EU) No. 1215/2012) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and the 2007 Lugano Convention on the recognition of judgments in civil and commercial matters, subject to, and in accordance with, the provisions of the aforementioned (as in force and applied in Sweden). Judgments rendered in courts in other jurisdictions may not be recognised and enforceable in Sweden as a matter of right without a retrial on the merits.
Restrictions on cross-border acquisitions and lending
Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?
There are generally no restrictions regarding acquisitions of domestic companies by foreign entities, but there are some exceptions in relation to acquisitions of, inter alia, entities that are subject to financial markets supervision, stock exchanges, insurance companies and investment fund companies.
Acquisitions of Swedish entities regulated by the Swedish Financial Supervisory Authority (SFSA) usually require the approval of the purchaser through an ownership assessment application. Such entities include banks and other credit institutions, payment institutions, mortgage lenders, consumer lenders and insurance companies.
The legal regime in Sweden does not generally restrict cross-border lending to companies. Refer to question 6 for any regulatory restrictions.
Types of debt
What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?
Acquisitions of Swedish companies are typically financed by a mix of equity or subordinated debt and senior debt. However, the equity to debt ratio varies depending on factors such as the size of the deal and the financial position of the purchaser. Vendor financing is quite common too. The senior part of the debt financing is usually provided by banks in the form of senior term and revolving loans and may be granted as a bilateral, a club deal or by a syndicate of lenders, depending on the size of the transaction. In larger deals, the financing could also consist of mezzanine and junior loans as well as high-yield bonds. Over the last few years, some small and mid-size transactions have also been financed through direct lending from parties other than banks.
Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?
Pursuant to the Swedish rules regulating public takeovers (including the Stock Market (Takeover Bids) Act (SFS 2006:451) and the Takeover Rules, adopted by the Swedish exchanges (based on Directive 2004/25/EC on takeover bids)), a public offer must only be made if the bidder has made the necessary preparations to implement the offer, including that it can meet any cash consideration in full. If the bidder relies on any debt financing, the financing must in practice be agreed on a ‘certain funds’ basis and cannot include any conditions that are not effectively within the bidder’s control. Generally, at the time a bidder announces its binding offer regarding a target company or a target group, it will have secured financing through either credit-approved commitments and signed commitment letters or full finance documentation (depending on the size of the transaction, the relevant bidder and the governing law of the financing).
While the ‘certain funds’ concept may vary in private deals, there is in practice not much difference between certainty of funds or the conditions precedent included in the financing documents in private and public acquisitions, although a bidder in a public acquisition would typically want to ensure a higher degree of having all conditions precedent within its control at the time of the bid (due to the takeover requirements mentioned above).
Restrictions on use of proceeds
Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?
The credit agreement (or the terms and conditions in the case of debt securities) often includes a purpose clause specifying the purpose for each facility or tranche. Different facilities or tranches may, for example, be designated for payment of the purchase price and for refinancing of the existing debt. For example, if there are financial assistance issues in providing guarantees or security from target entities in respect of certain acquisition debt facilities or tranches (see questions 14 and 15), then such facilities or tranches may be excluded from the relevant guaranteed or secured obligations. Other than such contractual restrictions in the credit agreement or terms and conditions, restrictions that may become relevant in the context of an acquisition financing could be restrictions imposed by sanctions and anti-money laundering regulations.
If the facilities or tranches are not used for the purpose specified in the credit agreement or are in breach of sanctions or anti-money laundering regulations, this would normally constitute a breach of the credit agreement.
What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?
A borrower is usually required to indemnify lenders against certain costs, expenses, losses or liabilities incurred in connection with the finance documents. Such indemnities typically include, inter alia, costs, expenses, losses or liabilities incurred as result of a breach of the provisions of the finance documents, tax and stamp duties, losses arising from the obligors’ payment or other defaults, currency conversion costs, increased costs resulting from regulatory changes, costs and expenses arising from documenting and executing the transaction, amendments to the documentation and enforcement and preservation of the security.