Trade Alert: February 2015, Issue 14


On 15 January 2015, the Swiss National Bank (“SNB”) unexpectedly announced that it was removing its longstanding cap against the Euro (SWF1.20:EUR1). The initial market reaction saw the newly unpegged Swiss franc soar 30% against the Euro, before settling to a one day appreciation of about 15%, while Swiss stock markets and EUR-SWF currency markets were badly hit.

Whilst the markets have steadied (by 25 February 2015 the Swiss franc had returned to SWF1.08:EUR1 and the stock market was approximately 200 points shy of levels before the SNB announcement), its initial impact was severe, not least for Miami-based hedge fund manager Everest Capital. The firm's largest single fund lost nearly all its capital, $830 million in assets, as its reliance on a declining Swiss franc was exposed. Alpari UK, a FOREX broker, entered into liquidation. Another FOREX brokerage, FXCM Inc., required a $300 million lifeline from Leucadia National Corp.

As the dust settles on the initial impact of SNB’s decision, the long term impact on Swiss companies has come into view. The majority of blue-chip Swiss corporations - watchmakers like Swatch and Richemont, or pharmaceutical firms like Novartis and Roche – rely on exports. Morgan Stanley analysts estimate that “85% of Swiss company sales come from overseas, and many of the large-cap names generate 90-95% of their revenue from sales outside Switzerland”.

A soaring SWF, therefore, has the potential to pull the rug from under the feet of Swiss borrowers. With Eurozone customers suddenly facing an expensive mark-up on Swiss products, January 2015 saw Swiss exports fall 0.8% in real terms from a year earlier.

This month’s trade alert sets out some of the key considerations for loan transfers in Switzerland.


In accordance with the established practice of the Swiss Federal Tax Administration interest payments made by a Swiss tax resident borrower under a syndicated loan agreement are generally not subject to Swiss withholding tax. However, interest payments on a bond issued by a Swiss issuer are subject to a 35% Swiss withholding tax. A loan agreement will be treated as a bond if:

(i)    a Swiss tax resident borrower of one syndicated facility with identical conditions owes interest-bearing money of more than CHF 0.5m to more than 10 lenders which are not banks (the “10 Non-Bank Lender Rule”); or

(ii)   a Swiss tax resident borrower under debt relationships with different conditions owes interest-bearing money of more than CHF 0.5m to more than 20 lenders which are not banks (the “20 Non-Bank Lender Rule”).

A debtor qualifies as a "bank" for Swiss WHT purposes, if:

(i)    the aggregate number of non-bank lenders to that Swiss entity under all of its interest bearing indebtedness, facilities and/or private placements exceeds 100; and

(ii)   the total of the company's interest bearing indebtedness, facilities and/or private placements reaches at least CHF 5,000,000.

In order to preclude such a trigger, syndicated loan agreements involving Swiss tax resident borrowers should provide for the following:

(i)    The initial drawdown of the facility by the Swiss borrower should be funded by a maximum of 10 non-bank lenders.

(ii)   Subsequent transfers to new lenders may only occur if such transfer will not result in a breach the 10/20 Non-Bank Lender Rules. A loan agreement involving a Swiss borrower should include transfer provisions that require Swiss-borrower consent, which may be withheld only if such transfer results in a breach of the 10/20 Non-Bank Lender Rules. Lenders tend to agree to this transfer restriction, as they do not wish to risk a deduction of 35% withholding tax on the interest payments under the facility.

(iii)   The Swiss borrower represents and warrants that it is, and will remain, in compliance with the 10/20 Non-Bank Lender Rules.


Generally, there is no Swiss WHT nor Swiss source tax on loan interest payments made by a Swiss borrower. However, there are two instances where Swiss source taxes or Swiss WHT will apply:

(i)    Swiss source taxes may become due on interest payments secured by Swiss real estate to foreign investors. This would require a Swiss borrower to withhold these taxes, at source, from the gross interest payments on the part of the loan which is secured by Swiss real estate. The applicable combined tax rate would be between 13% and 33% (as determined by the canton or commune in which the real estate is located). If a Double Taxation treaty is in place (as is the case with more than 90 countries, e.g. with France, Germany, USA, UK and Luxembourg), a reduced tax rate may be applied and withheld by the Swiss borrower.

(ii)   Where the borrower is in breach of the 10/20 Non-Bank Lender Rules, resulting in the classification of the loan as a bond, WHT of 35% is payable (as outlined above). If a Double Taxation Treaty is in place (as is the case with more than 90 countries, e.g. France, Germany, USA, UK and Luxembourg), there is a partial or full refund available to the extent provided in the applicable Treaty.


The following options are available:

Assignment: Allows for the transfer of the benefit (but not the burden) of the contract. However, as above, the 10/20 Non-Bank Lender Rules mean that many Swiss loan agreements require borrower consent. Further, any buyer is required to represent whether or not it is a non-bank lender.

Novation: Allows for initial contract to be extinguished, and replaced with a new agreement. However, the borrower (as a party to the novation agreement) must consent and the process may have security risks (i.e., it may release existing security or re-set hardening periods).

Sub-Participation: Allows a participant to fund an initial lender so it can fulfill its obligations under a drawdown request. In return, the initial lender pays a fee to the participant and passes on its capital and interest when these are received from the borrower. This concept may be used to prevent triggering 35% withholding tax under the Swiss 10/20 Non-Bank Lender Rules (as outlined above) provided that all conditions under the applicable Swiss regulations are satisfied.


The concept of a trust is not recognised under Swiss law, however the Hague Convention on the Law Applicable to Trusts applies. As such, foreign trusts may be considered valid and recognisable. Parallel debt structures are commonly used but these have yet to be tested in Swiss courts.


The rights of a Security Trustee to enforce its rights will depend on the nature of the security.

Pledge: With a pledge, the Swiss law doctrine of accessory applies. This requires  the secured party to be identical to the creditor of the secured claim. A pledge cannot be granted to a third party acting as a security holder in its own name and right. Instead, it must vest in name and right with the lender(s). The lender(s) can, however, be represented by a third party acting on their behalf.

Security transfer or security assignment: The doctrine of accessory does not apply here - a security trustee can enter into the security agreement and hold the security in its own name and on its own account for the lender(s).

Intermediated securities: It is not clear yet whether the doctrine of accessory applies under the Federal Intermediated Securities Act. Whilst it may not apply where securities are transferred to the secured party's account, it may apply where a control agreement is entered into.

No banking licence is required for cross-border commercial loans.

Special Note:
Special thanks to Ralph Malacrida and Thomas Rohde at Bär & Karrer in Switzerland, who assisted us with this Trade Alert.


David Cottle
Tel: +44 20 7170 8722

David Cottle is an associate in the Financial Restructuring Group and the Debt & Claims Trading practice.

David regularly advises on Swiss law transactions, including Petroplus Holdings AG issues.  He also represents creditors of Lehman Brothers International (Europe) and other Lehman insolvent entities.

David represents investment funds, bank lenders, brokerage firms and other financial institutions in the acquisition and sale of syndicated bank loans, debt instruments, bank deposits, derivatives and insolvency claims in par/distressed scenarios throughout Europe, the U.S. and Asia. He has extensive experience in the creation of bespoke LMA documentation for complex cross-border transactions. 


On 16 February 2015, the Re. Lehman Brothers International (Europe) (“LBIE”) application (known as “Waterfall II”) commenced at the High Court in London and will run until Friday 27 February 2015.  The applicants (Burlington Loan Management Limited, CVI GVF (Lux) Master S.A.R.L., Hutchinson Investors LLC, Wentworth Sons Sub-Debt S.A.R.L. and York Global Finance BDH LLC) hold senior, unsecured claims against LBIE in excess of £2.75bn. The hearing concerns the division of the substantial surplus in the administration of LBIE (which administrators PWC estimate could reach or exceed £7.39bn).

Whilst the Court will make a determination on 39 points of law (including whether unsecured creditors’ entitlement to interest from the surplus affects any non-provable currency conversion claims and the interpretation of master agreements) the key issue is calculation of statutory interest. The applicants argue that post filing date interest should be returned to unsecured creditors, in keeping with the fundamental principle that LBIE’s debts and liabilities (whether provable or not) must be satisfied in full before any assets can be distributed to shareholders. Further, in reliance on the rule established in Bower v Marris 1841, they argue that any re-payments made post filing date should be set off against outstanding interest payments, and shall not be deemed to have reduced the outstanding principal amount for the purposes of calculating interest still payable.

PWC are providing regular creditor updates and daily transcripts are also available.

Waterfall II Application – First Tranche Hearing – Daily Transcripts

Daily transcript – Wednesday 18 February 2015

Daily transcript – Thursday 19 February 2015

Daily transcript – Friday 20 February 2015

Daily transcript – Monday 23 February 2015

Daily transcript – Tuesday 24 February 2015

Daily transcript – Wednesday 25 February 2015


The next creditors’ meeting of Glitnir hf. is scheduled for Tuesday, 3rd of March 2015, at 10:00 am at Hilton Reykjavík Nordica Hotel, Suðurlandsbraut 2, Reykjavik, Iceland. Due to the creditors’ meeting, the Winding-up Board of Glitnir hf. stopped processing transfers from 18 February 2015 until, and including, 3 March 2015.

The next creditors' meeting of LBI hf. (formerly Landsbanki hf.) is scheduled for Thursday, 12th of March 2015, at 9:00 am at Hilton Reykjavík Nordica Hotel, Suðurlandsbraut 2, Reykjavik, Iceland.

Claims Filing Deadline
31 March 2015

Following the Luxembourg Court of Appeal’s decision on 3 December 2014, which rejected Rio Forte Investments S.A’s. (“Rio Forte”) application for controlled management, claims can now be filed to liquidators. The next claim filing deadline in 31 March 2015, though this is not a hard deadline as no judgment has been made as yet. Please click here to access the public website set up to provide updates on the proceedings and here for the claim form.


  1. The Loan Market Association (“LMA”) has published revised terms and conditions that apply to all trades with a Trade Date of 17 February 2015 onwards. Whilst the substance of the representations and warranties remains the same, the LMA has made changes to (i) the definitions of LIBOR and EURIBOR (to reflect changes to the administrators of each of these rates); (ii) the definitions of Average LIBOR and Average EURIBOR as they relate to the calculation of Delayed Settlement Compensation (“DSC”), which have been replaced with “Relevant Benchmark Rate”; (iii) the LIBOR reference in the LMA Form of Early Termination Amount Statement for Par and Distressed Trade Transaction; and (iv) Condition 32.4, with a non-substantive change in relation to electronic communications.
  2. On 18 February 2015, the LMA amended its template Mandate Letters and Confidentiality and Front Running Letter for Primary Syndication. Click here to view these amendments. The amendment arises from changes to the UK competition law regime, which established that conduct such as price-fixing, bid-rigging or market sharing between competing arrangers and potential lenders may give rise to individual criminal liability, even in the absence of dishonesty. Whilst it is uncertain whether primary syndication could be deemed price-fixing, bid-rigging or market sharing, the updated LMA documents now make clear that appointed arrangers may need to interact with potential lenders and to provide evidence of the borrower's recognition and authorisation of such activity.


ENERGY UPDATE – are you holding yourself out as a commodities trading advisor? A recent decision by the U.S. Commodity Futures Trading Commission ("CFTC") highlighted the importance to energy companies of periodically reviewing their marketing materials and related activities (including statements made on websites) to ensure that the company is not holding itself out - without CFTC registration - as a Commodity Trading Adviser. A number of exclusions and exemptions may apply to such activity, including exemptions for providing advice to fewer than 15 persons and for advice that is solely incidental to a cash market business. However, these exemptions are narrowly construed and governed by older no-action relief rather than the rule itself.

This Clients & Friends Memo, authored by Athena Eastwood, Greg Lawrence, Andrew Greenberg, and Neal Kumar, provides further information.

STEMCOR: On 20 February 2015, a London High Court rejected Stemcor UK Limited’s application for summary judgment against Global Steel Holdings Limited (“GSHL”) and Pramod Mittal (GSHL’s Chairman) (together the “Defendants”). Stemcor had proposed that the Defendants’ counter-claims, brought in the arbitration process running parallel to the court proceedings, had no real prospect of success. However the judge rejected this argument, stating that there was a “a real prospect of a cross-claim being established.” Click here to read the full judgment.

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