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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)?
International banks, local banks and non-bank financial institutions are all active in providing secured financing into Finland. Generally, smaller financings typically involve Finnish or Nordic banks either by themselves or in a club deal. In larger financings, especially when the borrower group operates in multiple jurisdictions, international banks are more commonly seen.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?
Yes. Larger financings are commonly syndicated in London and are governed by English law with the Loan Market Association’s (LMA) template documentation. In smaller financings, broadly speaking there is a Nordic standard that is essentially a truncated version of the LMA template documentation, although there are differences between countries and banks. US credit agreements are used when the lead arranger is a US financial institution.
Are syndicated secured loan facilities typical in your jurisdiction?
Yes. Syndication is typical for both Nordic club deals and naturally for larger, London-based financings.
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?
A facility agent and security agent are appointed as a rule.
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?
While Finnish law does not recognise the concept of ‘trust’ or ‘trustee’, a security agent can be appointed (although guarantees and security are legally granted in favour of the lenders), which from a practical perspective should achieve at least the same outcome. Parallel debt provisions are not used.
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?
This is fairly common, although it depends greatly on the structure and nature of the borrower’s operations. Lenders generally require share security over each company in the structure, as well as suitable direct asset security, such as floating charges and real estate mortgages, as well as pledges over IP rights, bank accounts and receivables.
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 most commonly calculated by reference to EURIBOR.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?
Not when lending to corporates (non-consumers). However, Finnish tax laws may limit the deductibility of interest expenses by the borrower, but that is not a regulatory restriction as such.
Use and creation of guarantees
Are guarantees used in your jurisdiction?
Yes, guarantees are commonly used.
What is the procedure for their creation?
The procedure for creating a guarantee is simple, since it is essentially a contractual obligation. Accordingly, a guarantee undertaking or agreement will suffice. No registrations or similar are required.
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?
Yes. Under Finnish financial assistance rules, Finnish companies are prohibited from providing loans, funds or security for the purpose that a third party would acquire shares in the company itself or any of its parent companies.
Further, all arrangements entered into by a Finnish company must provide adequate corporate benefit for the relevant Finnish company. Any acts that diminish the company’s assets or increase its debts without a business rationale may constitute unlawful distribution of assets. Consequently, a Finnish company should not grant guarantees (upstream or otherwise) when there is no business rationale in doing so.
These issues are typically dealt with through the inclusion of an appropriate limitation language in the agreements, as well as with tranching of the facilities and structuring measures where available.
Subordination and priority
Describe the most common methods of structuring the priority of debts and security.
The priority of both debts and security is most commonly structured contractually (ie, through an intercreditor agreement, which will contain provisions on waterfalls and right to acceleration and enforcement). It is also possible to separate senior and junior debt and the related security into separate agreements (with no intercreditor agreement in place), but this is relatively rare. Structural subordination is also fairly commonly (ie, ring-fencing the senior borrower group and security from the junior borrower group and security).
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 documentary taxes, stamp duties or similar are levied.
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