Capital and liquidity requirements

Describe how capital and liquidity requirements (eg, Basel III) impact the structure of bank loan facilities, including the availability of related facilities (such as letter of credit, banker’s acceptance and swingline facilities).

Capital and liquidity requirements have an impact on the availability and pricing of bank loan financings. It is, in particular, the leverage ratio (with which Swiss banks have to comply) that has the effect of limiting the overall volume of credit.

Such regulatory requirements are important factors but not necessarily key drivers for the structuring of bank loans. Increased attention is paid, on occasion, to collateral aspects to ensure that the particular transaction can be treated as a secured transaction for regulatory capital purposes.

Disclosure requirements

For public company debtors, are there disclosure requirements applicable to bank loan facilities?

Swiss listing rules require public companies to provide an overview in their annual reports in relation to their debt positions (but there is no need to disclose details in this respect).

Use of loan proceeds

How is the use of bank loan proceeds by the debtor regulated? (For example, is the use of bank loan proceeds subject to anti-corruption or anti-money laundering regulations or anti-terrorism sanctions? Are there limitations on the use of bank loan proceeds for certain forms of acquisition transactions, such as public tenders?) What liability could investors be exposed to if the debtor uses the proceeds contrary to regulations? Can investors mitigate their liability?

Parties will almost always agree upon the permitted use of funds in the facility agreement. Swiss law does not provide for a specific set of rules dealing with the use of bank loan proceeds. However, anti-money laundering rules, anti-corruption rules and sanctions regimes are applicable and must be complied with.

In this area, there has been a clear and strong trend for a number of years to include (often fairly detailed) sanctions and anti-corruption provisions in facility agreements. The concern of lenders in this area is typically reputational. It cannot be excluded that, in addition to reputational issues, legal liability could arise in this area under certain circumstances, depending, among other things, upon what regimes are not complied with and the scope and level of involvement or deemed involvement, if any, of lenders.

The areas of sanctions and anti-corruption are areas where foreign rules can become applicable to Swiss parties. In practice, it is sometimes challenging to find the right balance between the lenders’ requirements and the borrowers’ operational requirements when it comes to agreeing the details of sanctions provisions and anti-corruption provisions.

Cross-border lending

Are there regulations that limit an investor’s ability to extend credit to debtors organised or operating in particular jurisdictions (including jurisdictions that are subject to sanctions)? What liability are investors exposed to if they lend to such debtors? Can the investors mitigate their liability?

Sanctions rules can have this effect, an example being the sanctions rules in connection with the Ukraine war. Under these rules, it is not permitted, for instance, to extend credit to certain Russian persons.

Also, regulatory cross-border considerations or tax law considerations can have the effect that Swiss investors will not extend credit to debtors organised in certain jurisdictions.

Debtor’s leverage profile

Are there limitations (eg, laws, regulations, rules or guidelines) on an investor’s ability to extend credit to a debtor based on the debtor’s leverage profile?

There are no such limitations under Swiss law for corporate loans.

Interest rates

Do regulations limit the rate of interest that can be charged on bank loans?

Other than in the area of consumer credit, there is no specific legislation in Switzerland on the maximum rate of interest. However, rates of interest are subject to the general Swiss law principles on usury. Under those principles, the maximum permissible rate of interest depends upon a number of factors and the specific circumstances (such as, for instance, the currency in which the loan is extended and the inflation associated with such currency at the time, the duration of the particular financing and the risk profile of the particular financing). There is no clear test or limit, but practitioners generally believe that the limit would, in many circumstances, be in the range of approximately 15 to 18 per cent per year.

Currency restrictions

What limitations are there on investors funding bank loans in a currency other than the local currency?

There are no such limitations under Swiss law.

Other regulations

(Briefly) Describe any other regulatory requirements that have an impact on the structuring or the availability of bank loan facilities.

There are no other key regulatory requirements that have a general impact on the structuring or the availability of bank loan facilities.