Trade Alert - July 2015, Issue 19
Sweden has been an EU Member State since 1995, but has not participated in the European Monetary Union (“EMU”) and retains the use of the Krona (“SEK”).
Traditionally, the country has adopted a liberal attitude towards inward foreign investment and foreign entities are invited to invest in Swedish bonds and Krona-denominated money market instruments. Foreign entities are able to hold interest-bearing Krona deposits in Swedish banks. In addition, bonds and Krona-denominated instruments must be deposited with an authorised bank or a central bank approved stock brokerage firm.
Debt investors are actively acquiring loan investments across Scandinavia, for example; Com Hem AB, Concordia Bus AB, Findus AB, Gambro AB, Hilding Anders International AB, Molnlycke Health Care AB, Perstorp Holding AB, Phadia AB and Scandic Hotels AB. We are also advising funds on investments in real estate portfolios across multiple jurisdictions, including Sweden. Common forms of security in Sweden are pledges, business mortgages and real estate mortgages. As a general rule, under Swedish law, a pledge is perfected by the transfer of control over the pledged asset to the pledgee, which can make it inconvenient for a pledgor to pledge bank accounts, receivables or intra-group loans where a pledgor is required to exercise control over such assets as part of its business activities. Hardening periods vary, but an improper transaction is subject to a five year look-back period prior to bankruptcy, which may be extended where the improper transaction was made with a related party to the borrower. Trusts are not recognised in Sweden, so traders take note that transfers should be by assignment to avoid any risk of releasing security or the resetting of hardening periods.
Click here for Nordic Finance Transactions. This month’s Trade Alert sets out some of the key considerations for loan transfers in Sweden.
REGULATION - BANKING LICENCE REQUIREMENTS
Companies involved in certain banking and financing business in Sweden are, under certain circumstances, required to obtain a licence for their operations from the Swedish Financial Supervisory Authority (“SFSA”) (Sw. Finansinspektionen) in accordance with the Banking and Financing Business Act (2004:297) (Sw. lagen (2004:297) om bank- och finansieringsrörelse).
Acquiring a loan to a Swedish borrower would not ordinarily be regarded as a “financial business” under the Banking and Financing Business Act and therefore a license would not usually be required under Swedish law for the entity purchasing the Swedish loan.
The obligation to obtain a license only includes companies whose business operations is to (i) accept repayable funds from the public (i.e. deposits), (ii) grant loans or provide guarantees for loans, or (iii) for financing purposes, acquire claims or grant rights of use in personal property (leasing).
If the entity purchasing a Swedish loan is engaged in financing business in its country of incorporation, it may be obliged, pursuant to relevant EU legislation, to notify the competent financial supervisory authority in the purchasing entity’s country of incorporation that the entity intends to provide financial services in Sweden and procure that such competent financial supervisory authority informs the SFSA of such services.
Due to recent changes to the SFSA’s interpretation of the Banking and Financing Business Act, purchasers of Swedish debt should be aware that it could make a difference if the purchased asset is a revolving loan as opposed to a term loan. Therefore, there is a risk that the SFSA would require a purchaser of a revolving loan to have a banking licence. Nevertheless, the SFSA’s interpretation is not clear and the potential requirement for a banking licence should be assessed on a case-by-case basis.
Swedish law does not recognise trust structures and therefore there is no concept of a security trustee. Under Swedish law, it is generally possible to grant security interests in favour of an agent acting on behalf of all of the secured parties in matters relating to the finance documents as well as security interests.
As such, in cases of an insolvency of the security agent, provided that the relevant security documents clearly state that the security agent holds the security on behalf of the secured creditors, there should not be a risk that the security will become a part of the security agent’s insolvent estate.
TRANSFERABILITY OF LOANS AND METHOD OF TRANSFER
A transfer by novation is not a recognised concept under Swedish law and this method may be seen to be a renewal of the contractual relationship that may give rise to the resetting of hardening periods and potentially release security. It is therefore advisable for the transfer of loans in Sweden to be concluded by assignment. Generally, the assignment of a loan will be upheld by creditors of the Borrower, provided that the Borrower is notified of the transfer and the transferor is no longer allowed to deal with the loan after the transfer has taken place.
In general, there are no Borrower consent requirements under Swedish law unless specifically stated in the relevant Credit Agreement and provided that the Borrower is not in a less favourable position as a result of the assignment.
Participation Agreements are rarely used in Sweden and furthermore, under this arrangement, the benefit of any guarantees or security would not transfer to the participant under Swedish law but would remain with the lender of record.
WITHHOLDING TAX AND STAMP DUTY
Sweden does not impose withholding tax on interest (or principal) payments to domestic or foreign lenders and there is no obligation to deduct tax from the proceeds of a claim under a guarantee or the proceeds following an enforcement of security assets.
In respect of enforcement, lenders should be aware that Stamp Duty is levied on the transfer of real estate at the rate of 4.25% and between 0.4 and 2% for mortgage loans (depending on the type of asset) of the face value of new mortgages. However, existing mortgages can be re-pledged an indefinite number of times without incurring any additional stamp duty and there are no other transfer taxes or similar taxes levied on the transfer of security or loans in Sweden.
OTHER TAX CONSIDERATIONS
Sweden has an extensive tax treaty network with most treaties following the OECD model treaty. The country has in place more than 80 tax treaties with foreign jurisdictions and these treaties generally provide relief from double taxation on all types of income. Sweden is also a signatory to the Nordic Income and Capital Tax Treaty alongside Denmark, Finland, Iceland and Norway.
Therefore, where a tax treaty applies, no exit tax will be levied when a foreign buyer acquires debt in a Swedish Borrower from a Swedish lender. This is provided that the transaction is on an arm’s length basis.
POST COMPLETION FORMALITIES
There are no statutory requirements under Swedish law for a successful transfer between parties. A transfer of a loan is perfected and made valid and enforceable against third parties by way of notification to the Borrower under the loan that is being transferred. In addition, the transferor should not be able to deal with the loan after a transfer has taken place as if it was still the creditor, for example, to collect the debt in its own name or agree amendments to its terms.
Where there is also a guarantee in place, the guarantor should also be notified of the transfer of the loan to ensure that the guarantee will continue to apply following the transfer and that the guarantors may be called upon by any new lender that has validly acquired the loan that is being guaranteed. In this case, the guarantor is also notified of the transfer of the loan in order to avoid the guarantor fulfilling its obligations by way of payments to the original lender.
Special thanks to Zoran Stambolovski, Philip Herrström and Carl Johan Jennekvist of Mannheimer Swartling who assisted us with the Swedish law aspects of this Trade Alert.
- Hilding Anders International AB: A EUR 64.9m equivalent BWIC was launched on 15 July 2015 which comprised of bids for a portfolio of loans, PIK and shares. Among the biggest pieces on offer are a total of EUR 9.8m of Pages Jaunes’ debt, a EUR 9.3m piece of Fraikin’s debt, EUR 7.8m of Celanese Fashions TLC and a total of EUR 7m of CBR’s term loan and a EUR 5m piece of Jack Wolfskin’s debt.
- Perstorp Holding AB: On the 15 July 2015, Private Equity house PAI Partners (“PAI”) announced that they are considering an IPO for Perstorp Holding. The Swedish based manufacturer’s business could be valued at EUR 1.5bn, or nine times EBITDA. PAI could also refinance the debt of Perstorp either as part of the IPO or prior to the listing. Perstorp has approximately 1,500 employees and owed a net debt of SEK 11.25bn (EUR 1.21bn) with an EBIDTA amounting to SEK 1.5bn (EUR 161m) for the year end 31 March 2015.
- Gambro AB: On the 22 July 2015, the European Commission cleared the acquisition of Swedish medical technology company Gambro by US healthcare company Baxter International, subject to conditions. The EC Commission initially had concerns that the transaction would have given the merged companies a high market share in a significant number of EU states by combining the two largest suppliers of equipment and consumables in the healthcare market. However, the commitments submitted by Baxter International adequately addressed the EU Commissions concerns. Gambro is a Swedish medical company, active in the global markets, and develops, manufactures and markets products used in the treatment of a variety of medical conditions.
- Findus AB: Findus AB is on track for 2014/2015 growth despite the recent loss of a Young’s Seafood Sainsbury’s contract and a strengthening dollar which is increasing raw materials costs. The US Dollar appreciated 24% versus the Swedish Krona in the past year to SEK 8.34. Despite these obstacles, Findus continues to outperform peers in the food retail market, with around a 49% market share in Norway, 31% in the UK and 28% in Sweden in 2014.
Findus’ principal shareholders include Lion Capital (33%), Highbridge (32%) JPMorgan (29.8%) and Northwestern Mutual (4%). The shareholder group invested GBP169.3m in Findus as part of the Company’s 2012 recapitalisation and debt restructuring.
CADWALADER ADVISES ON €6.5bn Trading Transactions JANUARY-JUNE 2015
- ICELAND Capital Control Liberalisation, The Next Steps: Following the submission of composition proposals by Kaupthing hf on 7 June 2015, and Glitnir hf and Landsbanki hf on 8 June 2015, the Icelandic Task Force (established by the Minister of Finance and the Central Bank of Iceland (“CBI”)) have confirmed that the proposals submitted by Kaupthing hf, Landsbanki hf and Glitnir hf are consistent with the Framework endorsed by the Steering Committee and have recommended that an exemption is issued by the CBI on the basis of these proposals.
Glitnir hf therefore took the ‘next step’ in the proceedings and submitted its request to the CBI on 16 July 2015 to obtain the necessary exemptions from the Act on Foreign Exchange (No. 87/1992). This exemption will enable the implementation of the composition proposals made by the Bank’s creditors. On 16 July 2015, Glitnir hf and Islandsbanki also entered into Heads of Agreement to co-operate in order to facilitate the composition. Glitnir hf intends to launch the proposals made by its creditors “as soon as reasonably practicable” following the approval of the CBI.
In order for each Bank to proceed to confirmation hearings held by the District Court, creditors will be required to vote on and obtain a certain majority approval of the stability contribution payments and the proposed composition plans. The composition plans will become binding either (a) 7 days after the District Court confirms the compositions, unless the decision is appealed to the Supreme Court, or (b) on the date of the Supreme Court decision (if the District Court decision is appealed and subsequently confirmed by the Supreme Court).
Following the decision of the Court, each Bank will make their proposed ISK Stability Contribution payment to the CBI, as an alternative to the stability tax of 39% imposed by Parliament earlier this year if composition agreements had not been concluded by 31 December 2015.
Recognition of the compositions will be sought in the US, in the pending Chapter 15 proceedings, and in other relevant jurisdictions. The approval of the composition plans will be a step towards achieving distributions to creditors and ultimately, the conclusion of the winding-up of the failed banks.
Please click here for the announcement made by Glitnir hf.
Please click here for the proposals made by Islandsbanki.
- VAN GANSEWINKEL GROEP Applying Creditor Domicile Test to Establish Jurisdiction: The proposed Scheme of Arrangement for the Dutch waste management company was sanctioned by Justice Snowden on 14 July 2015 after an all-day hearing in London. Matters of jurisdiction were considered by the Judge in-depth throughout the hearing, in particular, whether the UK Court had jurisdiction to sanction the scheme and the group’s ability to release guarantees of a non-scheme company using the UK Scheme of Arrangement.
The company has no assets or domicile in the UK and the only connection is that the finance documents are governed by English law. In addition, there was some doubt as to whether the Court had authority to sanction the scheme, as the jurisdiction clause in the loan agreement provides only for the Obligors’ submission to the jurisdiction of the English Courts and not the Finance Parties, including the Lenders subject to the Scheme.
David Allison QC appearing on behalf of the company referred to NEF Telecom Co BV  case to support his contention that the company had “sufficient connection” to the UK. Judge Snowden decided to use the Re Rodenstock judgment as precedent and to apply Article 6 of the judgment regulation. The Judge requested specific information regarding the number of creditors that are domiciled in the UK, as well as the number by value for each class. Although 73.9% by number and 74.1% by value of creditors administer their claims from England, only 15 creditors out of 106, representing EUR 135m of drawn debt out of EUR 806.6m, are actually domiciled in the UK. It was noted that even though the parties only needed one domiciled creditor in order to apply Article 6, the figures were at the “lower end of the scale”.
Justice Snowden’s written opinion could be thought-provoking as it appears that the Judges’ approach will be to specifically test certain jurisdictional points of the Scheme, irrespective of the fact that in this case there was no dissenting creditors and it had sufficient creditor support to sanction the scheme. This is in contrast to the more routinely followed approach in recent case precedents that have accepted English governing law as a near automatic basis for jurisdiction.
Please click here for the written opinion by Judge Snowden.
- METROVACESA, S.A: Banco Santander, the company’s largest shareholder who currently holds a 58.7% stake, has agreed to acquire Banco Sabadell’s 13.8% stake together with the purchase of Sabadell’s EUR 300m debt in the company.
Metrovacesa’s shareholders have appointed Goldman Sachs to assist with restructuring the company’s EUR 2.4bn outstanding debt and Santander is working on a debt restructuring plan for the company to be presented to Metrovacesa’s other minority shareholders, BBVA and Popular. The company’s restructuring options include recapitalising debt or swapping debt for assets.
It has been reported that the Spanish Real Estate company is also considering establishing a standalone entity to which the company would transfer its undeveloped property and other real estate assets, such as residential mortgages, to prepare those assets for a large portfolio sale. The principal component of the company’s current debt is linked to mortgages. In 2014, Metrovacesa reported earnings of EUR 134.9m, down from EUR 167m a year earlier. However, losses were reduced to EUR 185m from EUR 349m in 2013.
- O.W BUNKER A/S - Singapore Court Ruling: On 21 July 2015, the High Court of Singapore passed judgment in favour of O.W Bunker A/S after dismissing 13 interpleader actions commenced by various bunker purchasers.
The Court noted that the purchasers have acknowledged that payment should be due to O.W Bunker A/S (who would then normally remit payment to the physical suppliers after retaining its margin) however, the purchasers’ claim that due to the current liquidation, insolvency and bankruptcy processes involving various O.W Bunker entities, they are unable to decide who to remit payment to.
According to the Court, interpleader relief is only appropriate when competing claims exist that have an objective basis in law and fact. The physical suppliers of the bunkers made several contentions to support the assertion that they had competing claims, all of which were dismissed by the Court as not applying in this case. In particular, the Court dismissed the argument that the physical suppliers have competing claims on account of maritime liens. This form of lien is not recognised in Singapore and, in any event, a maritime lien exists as a form of security on an underlying claim and is not a separate claim in itself.
The Court concluded that physical suppliers did not have “competing claims” against the bunker purchasers that could have paralleled O.W Bunker’s claims against those purchasers and that “adopting a liberal approach towards the grant of interpleader relief might open the floodgates” and that it would not only be improper, but “borders on abuse of process”.
Please click here for a copy of the Singapore Court Ruling – 21 July 2015.