Trade Alert - July 2016, Issue 31
REPUBLIC OF AUSTRIA
On 22 May 2016, Austria elected the pro-European former Green Party leader Alexander Van der Bellen as their President ahead of Norbert Hofer of the Freedom party (FPÖ), by a narrow margin of just 30,863 votes.
The far-right Freedom party contested the outcome of the vote, claiming that there had been formal irregularities in the count of the vote in several constituencies. On Friday 1 July 2016, Austria’s constitutional court announced that the election result would be annulled.
The re-run election is expected to be held on 2 October 2016.
Following the British referendum results, Hofer called for a referendum on Austria’s membership of the EU. However, the WSJ reports that he has since suggested that this would be a last resort, stating that a withdrawal from the EU would be damaging for Austria.
In this month’s Trade Alert, we highlight the key legal considerations when trading loans in the Republic of Austria.
BANKING LICENSE REQUIREMENTS
A banking license is required for the provision of a regulated banking service carried out in Austria on a commercial basis (gewerblich). Pursuant to section 1 paragraph 1 of the Austrian Banking Act (Bankwesengesetz), banking services include, inter alia, lending business, guarantee business and factoring business.
It may be possible to transfer a fully funded loan by assignment, subject to local counsel confirmation on a case-by-case basis.
Lenders may also have an obligation to notify the Austrian Central Bank (Oesterreichische Nationalbank) of their banking activities for statistical purposes.
Stamp duty (at a rate of 0.8%) may be triggered for the assignment of a loan, irrespective of whether or not the receivables are secured.
Certain exemptions from stamp duty requirements (foreign documents, securitization SPVs, etc.) may be applicable, but this needs to be assessed on a case-by-case basis.
WITHHOLDING TAX AND VAT
No withholding tax (“WHT”) is levied on loan interest paid to a non-resident entity. However, certain publicly issued bonds may trigger WHT. WHT payments may be reduced or exempt under double tax treaties. Austria has entered into double tax treaties with over 90 states.
For transfers by way of assignment, a VAT-exemption should be applicable under the Austrian VAT Act (Umsatzsteuergesetz).
SECURITY AGENTS AND TRUSTS
Austrian law does not recognise the concept of a trust, and a trust created under the common law of another country would not be recognised in Austria.
However, a facility agent, who acts as agent (Bevollmächtigter) for and on behalf of lenders in a syndicate would be recognised.
In practice, the following structures are commonly used:
- a parallel debt structure; or
- a joint creditorship structure (Gesamtgläubigerschaft) conditional upon the key credit and financing documentation being governed by Austrian law.
Austrian courts will also not recognise an agreement between parties to a contract whereby one party (such as a trustee) is authorised to enforce another party's (such as the secured parties') rights and claims in court (gewillkürte Prozesstandschaft).
METHODS OF LOAN TRANSFER
Under Austrian law, loans are usually transferred either by way of:
- assignment (Abtretung) of rights but not obligations; or
- assumption of a contract (Vertragsübernahme) which combines an assignment of rights and a transfer and assumption of obligations.
It is also common that lenders grant sub-participations in respect of loans.
Assignment does not usually require consent of the borrower. However, the transfer by way of an assumption of contract will generally require the consent of all parties to the relevant contract, including the borrower.
Transfer by way of novation is not advisable as, unless stated otherwise in the underlying credit documentation, this would discharge any security interests and guarantees given in respect of the original contract.
Execution and delivery of the assignment within Austria may trigger Stamp Duty. Clients must be cautious with all correspondence (see Stamp Duty requirements above).
TRANSFER OF GUARANTEES
Unlike accessory security, which can only be transferred with the underlying debt, a guarantee as defined in Section 880 of the second alternative of the Austrian Civil Code (Allgemein bürgerliches Gesetzbuch) will not automatically follow the underlying debt.
The mechanism to transfer the benefit of an existing guarantee depends on: (i) the wording of the guarantee; and (ii) the contractual arrangement between the seller and purchaser of the underlying debt.
Pursuant to Austrian banking secrecy rules, banks in Austria must not disclose client specific information to third parties, unless such client’s consent has been obtained.
In 2012, the Austrian Supreme Court ruled (9 Ob 34/12h of 26 November 2012) that an assignment in violation of banking secrecy regulations may be held null and void. Therefore, parties to a loan sale should carefully assess whether the intended transaction is structured in a way that does not breach the banking secrecy rules.
CLAIMS FILING DEADLINE
BANCO ESPIRITO SANTO, S.A. 26 AUGUST 2016
Click here for information _________________________
CADWALADER ADVISES ON
Loan Portfolio and
BANCO ESPIRITO SANTO, S.A. (“BES”)
On 13 July 2016, the European Central Bank notified BES of its decision to withdraw BES’ licence for the pursuit of banking activity.
The withdrawal of the banking licence authorisation initiated the liquidation of BES, in accordance with numbers 1 and 2 of article 5 of Decree-Law no. 199/2006, of August 14 (as amended), and produces the effect of the declaration of insolvency.
A liquidation committee was appointed by a judge of the Commercial Section of the Judicial Court of Lisbon on 21 July 2016.
It is advisable to file the claims in Portuguese represented by a local lawyer (as the liquidators may require a Portuguese language copy of the proof of claim) on or before 22 August 2016. Claims filed after the filing deadline may be time barred.
Creditors who are party to other litigation proceedings against Novo Banco or otherwise will need to ensure that they do not compromise their litigation rights in other proceedings when filing with BES.
For a non-exhaustive list of BES Issued ISINs that require claims to be filed, click here.
For further information on filing claims against BES please contact Shelley Kay.
We set out below some of the legal considerations for secondary loan trading in a worst case scenario where Brexit results in a clean break from the European Union and the United Kingdom loses all rights of access to the European single market and the EEA:
- The Single Market “Passporting” Regime – Entities authorised in the UK to “passport out” their lending services under the Capital Requirements Directive (known as “CRD IV”) in order to lend to corporate borrowers across the European Economic Area (“EEA”) may be at risk of losing this benefit should the UK’s direct access to the single market be restricted upon Brexit. Unlike the UK, some EEA jurisdictions have strict regulations governing lending to corporate borrowers by way of business. Jurisdictions with lending regulations include, amongst others, France, Germany and Italy.
- Impact on Grantors of Participations - Investors in the secondary loan market without the relevant lending authorisation often settle loan transactions with a UK authorised Grantor under an LMA Participation Agreement. Where Grantors lose their UK passporting rights such Participations will be required to be transferred to an alternative Grantor regulated in another EEA Member State.
- The Bank Recovery and Resolution Directive (the “BRRD”) – Upon Brexit, UK entities may no longer be considered to be “in scope” for the purpose of the BRRD and English law may be considered to be the law of a “third country”. In which case, “in scope” entities of other EEA Member States may be required to include a contractual acknowledgement under Article 55 of BRRD from their counterparties in the LMA secondary documentation (and other contracts) governed by English law.
Please note that the referendum decision has no immediate legal impact upon the European secondary loan market, and the above is subject to the final negotiated position between the UK and the EU.
AHMAD HAMAD ALGOSAIBI & BROTHERS COMPANY (“AHAB”)
On 24 July 2016, the Algosaibi Groups announced that it signed a settlement support agreement with the five-member Steering Committee, that was formed to negotiate with AHAB. The agreement formally commits AHAB and the Steering Committee members to support the implementation of the agreed settlement terms.
The other claimants have been asked to sign the Settlement Support Agreement as soon as possible over the coming weeks. At the date of the announcement, AHAB had agreed the amount of their claims and consented to their enforceability against AHAB with other claimants representing 89.9% by number and 56.3% by value.
BARTEC TOP HOLDING GMBH (BARTEC)
Bartec is a German company that mainly develops and manufactures safety technology products for oil and gas, chemical, petrochemical, pharmaceutical, and mining companies. Bartec sells its products through sales units and partners across the world.
In 2012, Charterhouse Capital Partners acquired Bartec from Capvis Equity Partners AG. Recently and as a result of the current unstable market surrounding the oil and gas industry, Bartec suffered losses. According to Reuters, Bartec has approximately EUR 384m in outstanding debt (including a EUR 260m term loan).
Having unanimously rejected a formal waiver request for a covenant breach, just over one third of Bartec’s lenders granted a forbearance until 4 August 2016.
If the loan being assigned is secured by a mortgage (Hypotheken) registration fees for the registration of the new mortgagee in the land register amounts to 1.2% of the secured obligations. In addition notarial fees may be payable, the cost of which will vary depending on the value of the transaction.
The fee for registration of pledges over Austrian intellectual property in the respective register is currently EUR 128.00 per registration.
HETA ASSET RESOLUTION AG
Following the collapse of the Austrian bank, Hypo Alpe-Adria-Bank International in 2014 it was split into a “good bank” and a “bad bank”. The bad bank was renamed HETA Asset Resolution AG (“HETA”).
On April 11 2016, the Austrian Financial Market Authority (“FMA”) announced updated resolution measures which included a 100% bail-in for all subordinated liabilities and a 54% bail-in for eligible preferential liabilities of HETA. Austria is the first member state to use the bail in powers granted under the EU Bank Recovery and Resolution Directive Further information can be found on the FMA website.
Secured bond holders holding more than EUR 5 billion of bonds responded with an announcement that the haircut does not reduce their liabilities, since the bonds' guarantee from the state of Carinthia remains in place.
HETA is in the process of selling a number of performing and non-performing loan portfolios. Further information on the sales process and available loans for sale can be found on HETA’s website.
GLITNIR HOLDCO EHF. (“GLITNIR”)
Glitnir announced that it effected an optional redemption of the Notes in part on 29 June 2016. The aggregate principal amount of each Noteholder’s interest in the Notes was reduced accordingly.
Noteholders can confirm the principal amount outstanding in respect of their holding of Notes via the secured website.
LBI EHF. (“LBI”)
On 17 July 2016, LBI published its financial information for Q1 2016.
This information was presented at the annual general meeting on the 14th of April 2016, and was previously available via the closed bondholder website only.
ICELANDIC TREASURY BONDS
Bloomberg reports that lawyers representing U.S. funds that bought Icelandic treasury bonds, after Iceland’s 2008 banking collapse, have claimed that the terms of a debt settlement may represent a partial sovereign default.
An auction arranged by Iceland’s central bank forced investors to accept “a huge haircut” on their claims.
The funds have requested the District Court of Reykjavík appoint specialists to investigate whether Iceland has any economic grounds for refusing to exchange their Kronur at market prices. Once the specialists have issued a response, the funds plan to file a formal case alleging a potential default has occurred.
Gudmundur Arnason, permanent secretary at Iceland’s Finance Ministry has stated that the government rejects any suggestion it failed to honour its obligations.