Trade Alert - May 2015, Issue 17


The performance of the oil and gas industries insulated the Norwegian economy from the sharpest edges of post-2008 global financial turbulence, with the well-functioning fiscal framework allowing for relative economic stability. This, in turn, has had a corresponding impact on the Norwegian lending market.

The Norwegian bond market was considered to be one of the best high-yield bond markets globally in 2013/2014 and during this time many new bond loans were issued and traditional bank loans refinanced. This trend has been particularly prevalent in Norway’s shipping and offshore industries. The issuance of bonds is carried out through the Nordic Trustee ASA, which is a trust operated on behalf of bond holders.

However, Norwegian banks are now experiencing pressure to meet new regulatory requirements as imposed by the Financial Supervisory Authority ("FSA") of Norway based on the implementation of Basel III, whilst the fall in oil prices since 2014 has undermined the previous foundations of Norwegian economic certainty. This month’s trade alert sets out some of the key considerations for loan transfers in Norway.

Banking Licence Requirements

Banks, whose normal course of business is the granting of loans, must be licenced by the relevant Norwegian authorities as a Financial Institution and comply with specific requirements with regard to capitalisation, financial positions, organisation and management.

The Norwegian FSA provides licensing guidelines for the acquisition of a loan in the secondary market by a non-Financial Institution. In order to be exempt from Norway’s strict licensing requirements, a non-Financial Institution should seek to meet the following requirements: (i) the lender does not actively approach the Norwegian loan market to offer loans; (ii) the lender has no physical presence in Norway; (iii) the lender has no involvement in the negotiation or structuring of the original loan and does not act as agent; (iv) the original loan is established pursuant to foreign law; (v) transfers are permitted under the loan agreement, with or without borrower consent; and (vi) the financing documents are executed and delivered by all parties outside of Norway.

If requirements (i) to (vi) are met, the FSA of Norway may permit the non-Financial Institution to act as a lender without a banking licence. However, it should be noted that no permanent market standard has been established in relation to the transfer of loans to other entities and it is advised that each transfer should be evaluated on a case by case basis.

Security, Trusts

Norwegian law does not recognise trust structures and therefore there is no concept of a security trustee. However, the role of a security agent acting on behalf of all lenders will be recognised. The security agent does not hold legal title in the secured assets but holds as agent on behalf of the finance parties.  As such, the secured assets will not form part of the insolvent estate of a security agent and, in the event of the security agent’s insolvency, the finance parties would replace the insolvent agent with a new agent.  Loan Market Association provisions for such replacement are customary in commercial loan documentation.

The agent will be able to act on behalf of the secured creditors in relation to enforcement and the application of proceeds against the creditors’ claims.

Transferability of Loans and Method of Transfer

Given that trusts are not recognised in Norway, if the loan is English law governed, assignment is the recommended method of transfer to ensure there is no re-setting of hardening periods or unintended release of security.  The debtor must be notified of the transfer in order to perfect the assignment. The credit agreement may also impose additional requirements for a valid transfer, such as the completion of a transfer certificate.

If all rights under a bi-lateral loan agreement are transferred, all related security interests are also transferred by operation of law.  This is the case unless the transferor and transferee have agreed otherwise, or the relevant loan agreement imposes restrictions on transfer.

If a participation under a syndicated loan agreement is transferred, and the participation is secured by Norwegian law security, buyers of the debt obtain the benefit of the security associated with the transferred debt.

Security may have to be re-perfected in order to be enforceable by the transferee in the event of insolvency. Depending on the nature of the secured assets, a security interest would be perfected by way of either (a) transfer of possession; (b) notification; or (c) registration with the relevant authority.

Withholding Tax and Stamp Duty

There are no requirements to deduct or withhold tax from (i) interest payments made to domestic or foreign lenders, (ii) the proceeds of claim under a guarantee or (iii) the proceeds of enforcing security under Norwegian law.

In respect of enforcement, lenders should be aware that a stamp duty tax is levied on the registration of a change of ownership of real estate. This is currently calculated at 2.5% of the fair market value of the property.

Other Tax Considerations

In April 2013, Norway entered into a Foreign Account Tax Compliance Act ("FATCA") agreement with the United States. In addition, Norway has concluded more than 85 tax treaties with foreign jurisdictions and this broad network aims to mitigate against double taxation.

A concern to Norwegian lenders is the 27% Norwegian Exit Tax. This tax applies where: (i) assets and/or liabilities are transferred to a non-Norwegian lender; or (ii) a Norwegian lender re-domiciles for tax purposes, and could impact loan pricing by the Norwegian lender.

Post Completion Formalities

Novation of a debt or an assignment of a claim is perfected by notice of the transfer to the debtor. It is not a requirement under Norwegian law that the debtor has accepted the notice, but in practice, banks often require such acceptance from the debtor in order to obtain evidence that the notification has been duly sent and that legal protection is obtained.

Nominal registration fees may be payable for the registration of the particular asset in the applicable Norwegian registry.

Special thanks to Bernt Olav Steinland and Tor Herdlevaer of Advokatfirmaet Selmer DA who assisted us with the Norwegian law aspects of this trade alert and Michael Neises and Christopher Gringel of Heuking Kühn Lüer Wojtek for their assistance with the German BaFin update.


  1. 1.    Lehman Brothers Waterfall I Appeal: On 14 May 2015, the Court of Appeal handed down judgment in the Lehman Brothers International (Europe) (in Administration) (“LBIE”) Waterfall I appeal. With LBIE’s administrators having now paid unsecured creditors in full, the issues on appeal related to the distribution of LBIE’s considerable asset surplus (estimated to be approximately GBP7bn). The judgment determined that (i) subordinated debt ranked beneath the repayment of statutory interest and the payment of any non-provable liabilities in the creditor waterfall; (ii) that FX losses suffered by USD denominated creditors could be claimed as non-provable liabilities; (iii) statutory interest which has accrued during the administration of LBIE is payable, in a subsequent liquidation of LBIE, to creditors who proved in the initial administration; and (iv) that it would be inequitable to prevent a shareholder in a company in administration from proving in that company’s distributing administration on the basis of a contingent future liability to a call under s. 74 of the Insolvency Act 1986.

A full summary of this case, and analysis of the central issues, is available here.



  1. ICELAND: The Government announced this week that a bill will be before Parliament by the end of this month outlining the steps to start the long awaited process of lifting capital controls. The measures will be accompanied by a “stabilisation tax”, according to Prime Minister Sigmundur Gunnlaugsson, however, it remains unclear whether such a levy will be part of the bill. It also remains uncertain which creditors exactly will be liable and at what level such stabilisation or exit tax will range, rates of 25 to 40 percent have been rumored by local media. Ministers of the Icelandic government and the Icelandic Central Bank have stated that a tax is necessary to avoid a considerable amount of capital leaving the country, thereby causing disruption to the Icelandic crown and the trade balance.
    1. 2.     GLITNIR: The Q1 Statement of Assets and Liabilities for 31 March 2015 was published by Glitnir on 27 May 2015 (click here). Glitnir's 95% ownership stake in Islandsbanki has a Q1 book value of ISK171.2bn (down from ISK 174.6bn at year end 2014).  “An Outline of a Resolution” on 6 May 2015 which outlines the possibilities for the estate to pay out to creditors without adversely affecting the balance of payment situation in Iceland. Please click here to read a summary of the Report. Please click here for a link to the Report.
  2. KAUPTHING HF: Grant Thornton Counter-Sues Vincent Tchenguiz: Grant Thornton has filed a counter-claim in the UK High Court against Vincent Tchenguiz for defamation after the property entrepreneur sued the accounting firm for GBP2.2bn. Mr. Tchenguiz commenced the lawsuit against the accounting firm and Icelandic Bank Kaupthing in November 2014 for their role in the unsuccessful Serious Fraud Office investigation against him and his brother.  Mr. Tchenguiz alleges that the defendants conspired to put pressure on him to settle separate litigation by encouraging the SFO to open a criminal investigation.  Grant Thornton are now seeking damages for libel and an injunction preventing Mr. Tchenguiz from publishing any further defamatory comments.  Kaupthing has said that the allegations against it and the firm “have absolutely no basis in fact or law and will be very vigorously contested”.

Click here for a Financial Times article on the case.

  1. Change of BaFin’s administrative practice for direct lending in Germany: Historically investment funds required a banking licence in order to engage in direct lending to German borrowers. In addition, the extension and restructuring of loans was also subject to strict requirements as this was regarded by the German regulator BaFin as engaging in “lending business” as defined in the German Banking Act (“KWG”).

According to BaFin’s new administrative practice announced on 12 May 2015, if an investment in a loan meets the criteria set out in the German Investment Act (“KAGB”) for the relevant investment fund, the fund is permitted to grant, restructure or extend loans without the need for a banking licence under the KWG.  BaFin further announced that the German legislature intends to adopt detailed provisions concerning the origination, restructuring and extension of loans by investment funds in the near future. With BaFin’s new administrative practice, investment funds are able to engage in direct lending without having to use a fronting bank or to implement subordination clauses in loan agreements. This opens up new and interesting possibilities for domestic and foreign funds to conduct flexible investments in German loans. For an article by Heuking Kühn Lüer Wojtek on the new practice direction, click here.

  1. DTEK: On 27 April 2015 the High Court in London sanctioned the company’s proposal to change the governing law of their senior notes from New York to  England and Wales, in order to apply for  a UK Scheme of Arrangement in a restructuring plan which has been said to be akin to the Apcoa Parking case. The restructuring came after the company failed to obtain consents from all holders of its USD200m 9.5% Senior Notes which were due to be paid on 28 April 2015.

The restructuring of the company’s dollar bonds is seen as another step in the growing use of the UK’s Scheme of Arrangement procedure when dealing with liabilities of companies with tenuous links to the country. In addition, it is seen as a precedent for other companies with New York law governed bonds who would prefer an alternative method to the costly US based Chapter 11 proceedings. The Loan Market Association published a revision of its leveraged finance standards in September 2012 and recommended that the change of governing law should be considered a matter requiring unanimous consent.

  1. Rio Forte Investments S.A. ("Rio Forte"): The Portuguese Judicial Police reportedly seized 586 Rio Forte properties worldwide up to 22 May 2015 in a pre-emptive move pending the conclusion of investigations into corruption, money laundering and fraud relating in part to a EUR 897 million debt issuance of Rio Forte purchased by Portugal Telecom SGPS S.A.. Such assets may be used to repay in part the Portuguese taxpayer who underwrote much of the Banco Espírito Santo S.A. group's collapse by capitalizing the "good bank" Novo Banco S.A..

The liquidators of Rio Forte (Alain Rukavina and Paul Laplume) have announced another postponement to the claim filing deadline. They will now accept claims from 1 June 2015 up until 30 September 2015.

Cadwalader News

ACI Summit on Controlled Substances: Regulation, Litigation and Enforcement

Jodi Avergun is speaking at this ACI event on January 30 in Washington, DC.

Cadwalader Subscription Center