The Nordic banks remain the most notable lender-side players in Norwegian acquisition financing transactions, with Norway’s largest bank, DNB Bank ASA, being the largest. In larger transactions, however, international banks are very much present, and in particular where the asset financed is related to the oil and gas industry, renewables or infrastructure. Direct lending and international debt funds come in, but due to the Norwegian financial regulatory regime (with lending being a strictly regulated activity) they have traditionally not been as common in the Norwegian market as in many other jurisdictions, and care must be taken to ensure compliance with the relevant legal restrictions.
The most notable M&A transactions in Norway over the last couple of years have been within the energy, renewables, infrastructure and aquaculture sectors. These transactions have largely been supported by corporate/asset-backed financings and equity raises, and not so much the traditional leveraged buyout structures. Also, the very active Norwegian high-yield bond market has remained an important source of funding, and any shortfalls in bank lending have often been covered by investors tapping into the high-yield bond market – often in combination with some sort of bank financing (either as a bridge to bond or in a super senior structure). It is also a trend that the high-yield bond market is being used more as a direct source for acquisition financings than before, with the Nordic investment banks managing to secure funding by way of private placements/underwritings from a selected group of investors.
Some examples of direct lending, with foreign funds providing acquisition financing, are also seen.
The general previous effects of the COVID-19 epidemic on financing no longer affect the Norwegian lending market. The attack on Ukraine triggered a temporary pause in lending last year. Increased diligence on sanctions-related matters is still seen, as well as regulation of force majeure provisions in loan documentation.
In terms of governing law, there are no differences between corporate loans/acquisition finance/LBOs – if the corporate or acquisition target is Norwegian, the loan agreement would also typically be governed by Norwegian law. Norway’s oil and shipping industries have been important in getting foreign lenders comfortable with finance documents governed by Norwegian law, something which also contributes to a more efficient and cost-saving process.
Most loan facility agreements in Norway are drawn up in the English language and are based on the form of agreements of the LMA, adapted to Norwegian law specifics, and also somewhat simplified. This applies both to corporate loans and acquisition financings/LBOs. Bilateral loans which are not intended for syndication, however, may be documented using the local banks’ own template agreements (and may also be in the Norwegian language).
The lenders’ counsel have traditionally been responsible for the drafting of the loan documentation, but increasingly sponsors’ counsel having the drafting role (based on precedent documents, etc).
There are no requirements relating to the language used in documentation under Norwegian law, but financing transactions are, as a rule, documented in the English language.
It is standard for legal opinions to be delivered in Norwegian acquisition finance transactions. It is most commonly the lenders’ counsel that delivers both the capacity and the enforceability opinions, and such legal opinion(s) are then delivered as a condition precedent for utilisation on the closing date of the acquisition.
The legal opinions will most typically cover the following opinion statements: status; power and authority; legal validity and enforceability; non-conflict or violation; authorisations and consents; no filings; no stamp duties; no deductions; perfection of security; pari passu; choice of law and jurisdiction; enforcement of foreign judgments; no licence; non-residence and no immunity.
As regards perfection on transaction security, this is often confirmed post closing (either in a supplemental opinion or by way of simple confirmations from the law firm) once the floating charges have been registered in the Norwegian Register of Movable Assets (see 5.1 Types of Security Commonly Used).
It is market practice for Norwegian law firms to have their legal opinions subject to a liability cap, and this is something which the Nordic banks typically accept. Also, all Norwegian law firms are conscious to underline that their opinions are governed by Norwegian law and the exclusive jurisdiction of Norwegian courts.
Senior lending is the most typical lending structure for acquisition financings in Norway. A bidding company (SPV) structure is then typically established by incorporation of a Norwegian limited liability company (No aksjeselskap or AS). The classic TLA (amortising)/TLB (bullet) structure for the bidco combined with an acquisition/capex facility and a multicurrency revolving credit facility being made available to the target group still persists as the most usual when doing a leveraged finance transaction with Norwegian and Nordic bank lenders.
Duration of the credit facilities have been shortened compared to what was the norm some years back, typically from seven to five years (or 3+1+1 years). Also, the minimum equity level requirements as part of the total financing structure have increased in recent years, and this will normally take the form of straight equity due to the limited interest deduction rights for intercompany debt.
It is not uncommon to see vendor financing by way of seller’s credit in these structures, with the vendor financing then being made structurally subordinated to the bank financing and also regulated by an intercreditor agreement (see 4. Intercreditor Agreements). It is also fairly common for such vendor financing to have PIK interest and a bullet repayment date occurring after the bank debt.
Unitranche lending has so far not been very common in the Norwegian market.
With lending being a strictly regulated activity in Norway, the market for mezzanine or junior lending and PIK loans from various debt funds or similar is not really present. It is therefore difficult to describe a typical structure used for these instruments in the Norwegian market. However, to the extent such structures would be used, it would generally follow the structure seen in other European jurisdictions with low cash interest and the remaining as PIK, warrants, etc.
A typical structure will be for banks to provide a bridge facility to the acquirer to be taken out by a subsequent capital markets issue (bond or equity, or a combination) or a syndicated long-term bank facility. The banks providing the bridge will most often require a step-up in the margin after a certain time period post completion, and also have a preferred role in arranging the take-out financing.
It is not uncommon to see a senior bond being issued by the operating company, whereas the parent company issues a junior/high yield bond (structural subordination). In acquisition financings, this is typically a relevant source of take-out funding.
Again, due to the regulatory restrictions, this is not very common in the Norwegian market. Instead, any such private placements will be structured as a Norwegian bond loan, which allows for a very efficient process based on standardised bond documentation and speed to market.
Asset-based financing will typically be structured as working capital and term loan facilities, with security taken over the relevant assets, with debt-sizing usually being based on a loan-to-value ratio.
Intercreditor agreements regulating co-ordination between different classes of creditors and sharing of security are customary in Norway, and the type and content of these agreements will vary depending on the type of financing and assets in question. In acquisition financings, where there are several creditors involved, it is common to use a simplified version of the intercreditor agreements of the LMA.
It should be noted that some of the typical intercreditor provisions of the LMA have never been tested by Norwegian courts, and can prove to be difficult to enforce in a bankruptcy scenario as the bankruptcy estate may, as the main rule, elect to step into the position of any of the debtor’s unfulfilled contractual obligations in a contract of mutually burdening nature. Also, it is questionable whether the obligation to release intra-group claims in the event of a default will be binding on the bankruptcy estate. Nevertheless, these provisions are typically found in an intercreditor agreement used in a Norwegian acquisition financing, leading to legal opinions being qualified, etc.
Albeit Norwegian law does not acknowledge the common law trust concept, Norwegian law recognises the concept of a common security agent holding security positions on behalf of different creditors, and the rights and duties of the security agent is then typically regulated in the intercreditor agreement.
In the Norwegian high yield bond market, fairly standard intercreditor agreements have been developed to govern bank/bond deals, in a joint effort between the largest law firms and the Nordic Trustee. In particular, the “super senior” structures with revolving credit facilities granted by banks to finance the borrower’s working capital combined with a bond tranche will be regulated by intercreditor agreements very much influenced by the LMA templates. In such a structure, the banks and the bondholders will share in the security on a pari passu basis with Nordic Trustee being appointed as common security agent, and so that the banks will have priority in the waterfall from any enforcement proceeds. Contrary to what is the position in the LMA, it is market standard in such super senior structure that the revolving credit facility lenders will have super seniority not only in the security but also any guarantees.
The role of hedge counterparties in Norwegian law intercreditor agreements are typically dealt with in the same manner as in the LMA intercreditor agreement templates.
Establishing security interest in Norway is generally a fairly simple and cost effective process compared to many other European countries, and there are no onerous stamp duties or notarial requirements or fees involved.
Norwegian laws on taking security are based on the following fundamental principles.
Types of Security
Although the Norwegian Liens Act of 1980 (the “Liens Act”) does not allow an entity or person to provide a general fixed or floating charge over all its present and future assets, it is possible to create security over a wide range of closely defined asset types. For all practical purposes, therefore, a Norwegian company can create security over most of its assets, including shares and other financial instruments, real estate, movable assets and receivables/monetary claims. That said, there is no legal basis for establishing security over general contracts as such under Norwegian law.
In an acquisition financing transaction, the typical security package would comprise the following:
Granting of the security interest marked with an asterisk (*) above will be subject to the Norwegian restrictions on financial assistance discussed under 5.5 Financial Assistance. The same applies to the extent the Target and its Norwegian subsidiaries will be acting as guarantors.
Security Over Shares
Norway no longer operates with physical share certificates. Shares in public limited liability companies (allmennaksjeselskaper or AS) are, however, registered with the Norwegian Central Securities Depository (VPS). Shares in private limited liability companies (aksjeselskaper or AS) will normally only be registered in the company’s shareholders’ register (which shall be kept and updated by the relevant limited liability company).
Security over the relevant shares is established by way of a share pledge agreement to be made between the relevant shareholder and the pledgee (ie, the security agent). Perfection of the share pledge over shares which are not registered in VPS is obtained by giving notice to the company having issued the shares being pledged, and the pledge shall be registered in the shareholder registry of the company, noting the name, address and registered address of the pledgee.
There are no further registrations required in connection with establishing and perfecting a pledge of shares, and there are no public fees involved with the taking of security over shares in Norway.
Security Over Structural/Intercompany Loans
Security over specific monetary claims such as structural or intercompany loans is established by an assignment agreement between the relevant intercompany creditor and the assignee (ie, the security agent), and perfected by the giving of notice to the relevant intercompany debtor.
It is possible to take security over all present and future intercompany receivables, provided the same may be adequately identified (for example, by reference to an intercompany loan agreement). There are no registrations required in connection with establishing and perfecting an assignment over intercompany receivables.
Floating Charges Over Operating Assets, Inventory and Account Receivables
In a Norwegian acquisition finance transaction, it would also be typical for the Norwegian operating companies involved (subject again to the restrictions on financial assistance being discussed below) to grant floating charges over all its operating assets (Nodriftstilbehørspant), operating assets (Novarelagerpant) and trade receivables (Nofactoringpant) from time to time. Security over said assets is established by entry into of a charge agreement (one agreement for each asset class), and perfected by registration of a standardised pledge registration form with the Norwegian Register of Movable Assets (No Løsøreregisteret). Such registration is subject to a nominal registration fee of some NOK1,516 (as of 1 January 2023) per asset class.
Security Over Real Estate
Security over real estate (commercial and residential) is created by agreement and perfected by way of registration of a standard mortgage document with the Norwegian Land Register. Leasing agreements relating to real estate which are registered in the Land Register can also be charged by registration in the same register. Registration of a security interest over real estate is subject to a registration fee of NOK585 (as of 1 January 2023). Unless otherwise agreed, a real estate mortgage regarding ownership established a security interest over the relevant land/plot identified by a separate registration number, houses, buildings and plants located on the plot owned by the mortgagor as well as accessories normally regarded as such in the purchase and sale of such real estate.
When the mortgage document is registered with the Land Register, the mortgagee will, by operation of the Norwegian Insurance Agreements Act of 1989, also become co-insured on any insurance of the right to the real estate.
Security Over Bank Accounts
Security can also be taken over the monetary claim that an account holder has against the account bank in respect of the relevant bank account(s). Such security is then typically established by an assignment agreement between the assignor (the account holder) and the assignee (ie, the security agent), and perfected by the giving of notice to the relevant account bank. Unless specifically agreed and notified to the account bank, the charged account remains unblocked and can be operated freely by the account holder/assignor.
There are no registrations required in connection with establishing and perfecting an assignment over bank accounts/bank account claims, and no public fees are involved with the taking of security over bank accounts. It should be noted that certain accounts reserved for tax payment purposes etc, cannot be made subject to security.
There are no formal requirements in terms of a bilateral and contractual release of a Norwegian security interest, and such release may be done by way of the security taker sending a release letter confirming the same.
The manner in which a Norwegian security interest is formally released, however, depends on the specific security interest in question. In terms of security interests which are subject to registration in a specific asset registry (such as the Norwegian Land Register for real estate, the Norwegian Ship Register for vessels, the Norwegian Register of Movable Assets for operating assets, inventory and trade receivables), these are normally released and deregistered by endorsing a release in Norwegian on the original mortgage document and submitting the same to the relevant registry for deregistration.
In respect of a charge of bank accounts or assignment of intercompany claims, a notice is usually sent to the relevant account bank or intercompany debtor, respectively, and in respect of a share pledge, no formalities are required to release the security interest, however, an updated shareholder register would normally be issued following an agreement of release by the security holder.
There are no particular form requirements other than in respect of security to be perfected by registration in an asset register, in which standardised mortgage registration forms will be required.
Generally, perfection of security in Norway is quite simple and not time consuming. This varies depending on the asset to be subject to security, but as a main rule security over any type of monetary claim is perfected by notice to the debtor, shares by notice to the company whose shares are being pledged, and security over assets capable of being registered in an asset registry, or floating charges over specific categories of assets, are perfected by registration of standardised pledge forms. Also, as set out above, the registration fees are nominal.
Section 8–7 of the Norwegian Private Limited Liability Companies Act of 1997 (Noaksjeloven) and the Public Limited Liability Companies Act of 1997 (Noallmennaksjeloven) (together, the “Acts”) restrict the ability of a company to grant loans and credit, guarantees and security (together “Financial Support”) to, or in respect of the obligations of, its shareholders (or any affiliate of its shareholders).
Pursuant to Section 8–7 of the Acts, a company may not grant Financial Support to, or in respect of the obligations of, its shareholders (or any affiliate of its shareholders) in an amount which exceeds its distributable reserves (free equity) at the time of the grant of the Financial Support. Furthermore, the Acts require that the relevant beneficiary of the Financial Support provides adequate security for the repayment or recourse obligation. However, and notwithstanding the foregoing, the restrictions in Section 8–7 of the Acts exempt any Financial Support granted by a company to, or for the obligations of:
provided, in each case, that any such Financial Support is granted on ordinary commercial terms and principles (see also 5.5 Financial Assistance and 5.6 Other Restrictions) and, with respect to the exemption in the second bullet point above), is made for the purpose of serving the “financial interest of the group”.
There is limited jurisprudence or other official guidance on how the term “financial interest of the group” should be construed, and consequently there is some uncertainty on how this term would be interpreted by a Norwegian court. The general perception and practice in Norway seems to be that the term “financial interest of the group” covers a relatively wide range of transactions, but that for instance, transactions whose primary purpose will be to benefit the ultimate shareholders of the parent company and not the group (such as dividend recap transactions or similar) will not qualify under this exception. The assessment of whether the grant of Financial Support complies with the Acts will be determined on the basis of the circumstances at the time when such Financial Support is provided. Financial Support which was lawful at the time it was provided, will remain lawful notwithstanding any subsequent changes to the circumstances, so that if, for example, the financial condition of the company deteriorates and the company at a later time no longer has any distributable reserves, any Financial Support already provided will not be invalidated as a result of the change in circumstances.
In addition to the Norwegian law restrictions on upstream and cross-stream Financial Support outlined in 5.4 Restrictions on Upstream Security, Section 8-10 of each Act restricts a company from granting financial assistance in connection with the acquisition of its shares (or those of its holding company/companies).
For the purposes of Section 8–10 of the Acts, “financial assistance” covers a variety of transactions, and the restrictions apply not only to grants of loans, guarantees and security, but also to other types of transactions, such as making assets available or providing capital in the form of new equity. The Acts furthermore comprise any financial assistance which is given “in connection with” an acquisition of shares, and may therefore also restrict financial assistance granted after completion of the acquisition (such as the refinancing of an acquisition loan facility or a subsequent merger of a company and the acquiring entity). However, there must be a sufficient nexus between the financial assistance and the acquisition, both in time and with regard to the other circumstances of the financial assistance, for Section 8–10 of the Acts to be applicable.
Pursuant to Section 8–10 of the Acts, a company may, as a starting point, not grant financial assistance in connection with an acquisition in excess of its distributable reserves (free equity). However, amendments to the Act, that came into force on 1 January 2020, provided certain ameliorations of the restrictions on financial assistance in connection with an acquisition, so that the limitation on the amount of the financial assistance to the company’s distributable reserves will not apply if:
Please note that this exemption from the distributable reserves limitations only applies to Norwegian private limited liability companies, so that a Norwegian public limited liability company may only grant financial assistance in an amount up to its available distributable reserves (and subject to compliance with the other requirements of Section 8–10).
In addition, in order for financial assistance to be lawful under Section 8–10 of the Acts, the financial assistance must be granted on ordinary commercial terms and comply with certain other procedural formalities. The corporate formalities which are conditions to the lawful assistance, inter alia, require the board of directors of the company to, prior to the grant of financial assistance, issue a report (No redegjørelse), which among other things, includes (i) an account of the background and the terms of the relevant acquisition and financial assistance (including whether the Norwegian company is compensated for providing the financial assistance), (ii) an assessment of the company’s reasons for granting the financial assistance and (iii) an assessment of the creditworthiness of the beneficiary of the financial assistance (ie, the acquiror). The board of directors’ report must also include a declaration to the effect that it will be in the company’s interest to grant the financial assistance and that the company will continue to have sufficient equity and liquidity as required by the Acts following the transaction (meaning that the requirements as to sound equity and liquidity are complied with).
Further, the report must evidence that the financial assistance is being granted on “ordinary commercial terms”, typically by way of the Norwegian target company receiving consideration for providing the financial assistance (for example, a guarantee commission or similar from the acquiror). The report and declaration must be enclosed with the notice to the general meeting of shareholders of the company, and the financial assistance must be approved by at least two-thirds of both the votes cast and the share capital represented at the general meeting of the company. The report and declaration must be filed with the Norwegian Register of Business Enterprises (No Foretaksregisteret) before the financial assistance can be lawfully provided.
Notwithstanding the restrictions set out above, the restrictions pursuant to Section 8–10 of the Acts only apply to financial assistance granted by the company insofar as it relates to the acquisition, and therefore do not apply to (inter alia):
Any financial assistance, guarantees or security which have been granted in contravention of the limitations set out in Sections 8–7 and 8–10 of the Acts may be declared void if challenged (eg, by other creditors or a bankruptcy estate) and may also give rise to directors’ liability risks. If a credit, guarantee or security is provided in violation of any of these regulations, funds paid to a shareholder or the value equivalent to any guarantee or security granted will have to be repaid to the Norwegian company. The provision of guarantees and security will, however, only be voidable vis-á-vis a third party if it can be demonstrated that the third party acted in bad faith.
As will follow from above, the Norwegian rules on financial assistance are fairly vague and a target company’s ability to give guarantees and/or grant security depends very much on the factual circumstances. Nevertheless, it is market standard to obtain the usual upstream guarantees and security from the target company and its subsidiaries, but making the guarantee obligations and the security subject to appropriate limitation language ensuring that the financial assistance is it not being made in contravention of the applicable rules.
In addition to the restrictions addressed in 5.4 Restrictions on Upstream Security and 5.5 Financial Assistance, there is also a general principle of corporate benefit under Norwegian law, which may, in some situations, limit a Norwegian limited liability company’s ability to grant loans, guarantees or security on behalf of its shareholders.
In contrast to many other jurisdictions, Norwegian law does not have a “clear and well-defined” corporate benefit principle (ie, that transactions that do not sufficiently coincide with the interest, or are to the benefit, of the company may be set aside). Nevertheless, the Acts include several provisions which are primarily intended to (i) ensure that shareholders and other related parties, board members, creditors etc, do not receive what may be considered an unreasonable benefit at the expense of the Norwegian company (normally referred to as “abuse of lawful authority”) and (ii) secure maximum profits/return for the company and its shareholders.
The “corporate benefit test” would normally not prevent a company from granting guarantees and security as part of its participation in a group financing structure, provided that the company’s financing conditions (interest rate, repayment terms, etc) are not adversely affected as a result thereof. Whether the benefit to the group in general is sufficient when there is no tangible and direct benefit to the relevant company providing the guarantee or security, is uncertain under Norwegian law. Important criteria for whether the guarantee or security is in the company’s interest (corporate benefit) would include the liquidity and equity positions of the company, its other obligations (including future and contingent obligations), the financial exposure under the guarantee or security (in proportion to equity), to what extent cross guarantees or security benefiting the Norwegian company exist, whether any guarantee provision will be paid (and, if so, on what terms), and similar.
In general terms, any enforcement of a security interest created over an asset located in Norway must be conducted within the rules and regulations set out by the Norwegian Enforcement Act of 1992 (the “Enforcement Act”). The Enforcement Act sets out various enforcement procedures based on the relevant asset classes, and these will vary from asset class to asset class as further described below.
The Enforcement Act is mandatory in the sense that the security provider and the security taker cannot, prior to an event of default, enter into an agreement that sets out different enforcement procedures than those in the Enforcement Act (important exceptions apply for security over shares charged in accordance with the Norwegian Financial Collateral Act of 2004 (the “Financial Collateral Act”) or security over receivables, see 2.2 Use of Loan Market Agreements (LMAs) or Other Standard Loans and 2.3 Language). Following the occurrence of an event of default, however, the parties may freely agree to conduct the relevant enforcement by other means than those set out in the Enforcement Act.
Under Norwegian market-standard security documents, all security assets are enforceable upon the occurrence of an event of default which is continuing (as described in the relevant security document), including but not limited to a payment default. The events of default under the relevant security document will be linked to the events of default providing for acceleration as described in the relevant loan facility agreement or any intercreditor agreement.
In principle, any event of default as agreed by the parties under the senior facilities agreement (and/or intercreditor agreement, if relevant) will provide for a right of enforcement, and does not require a payment default to have occurred. Note then, however, that the full catalogue of events of default that are normally contained in an LMA-based loan agreement has never really been tested before a Norwegian court, and that Norwegian contract law generally requires a material default to have occurred for a right of the other contract party to terminate the contract or similar.
Enforcement of Security Over Shares in Accordance With the Financial Collateral Act
Security over shares may be enforced without the involvement of the enforcement authorities, provided that (i) the shares are charged in accordance with the Norwegian Financial Collateral Act, and (ii) the parties have entered into a written agreement with respect to the enforcement process. Both requirements are normally satisfied in Norwegian law share pledge agreements.
The enforcement procedure may then be initiated immediately upon the occurrence of an enforcement event/event of default (however described in the relevant share pledge agreement). Normally it is then agreed that on the occurrence of an enforcement event, the security agent may realise and enforce any financial collateral by sale or appropriation and by setting off their value against, or applying their value in discharge of, the relevant secured obligations, without any requirement of:
Pursuant to the Financial Collateral Act, the enforcement of shares must be done on “commercially reasonable terms”. Unless the shares are sold immediately, or within a reasonable time, to a third party on an arm’s length basis, the shares must be valued and the amount outstanding under the relevant finance documents will be reduced by an equivalent value. The valuation and the final settlement will be conducted in accordance with the terms agreed by the parties in the share pledge agreement.
The relevant share pledge agreement will, in most cases, set out an enforcement procedure in line with the overview set out above, and if the pledgor (and its board of directors) do not co-operate with the lenders/security agent in terms of the practical steps required in turning over the shares to the security agent or a third party, the directors may expose themselves for personal liability.
The enforcement procedure under the Financial Collateral Act is based on practice developed by the largest Norwegian law firms, and has not really been tested by the courts.
In cases where assets have been pledged in accordance with the Financial Collateral Act, the agreed, immediate enforcement procedure has been recognised both by the parties to the relevant share pledge agreements and the bankruptcy estates, and the estates have not attempted to invoke a stay. Based on the preparatory works for the Financial Collateral Act and the commentaries to its provisions, the immediate realisation of the secured financial collateral was a main objective of the Financial Collateral Act. It appears therefore that the parties to a share pledge agreement have the ability to determine the procedure for the realisation of the security.
It should be noted, however, that should the basis for the enforcement procedure, the valuation or the procedure itself be contested by the security provider, the target company or others, there is very limited case law to indicate how a Norwegian court would rule.
In any case the “immediate” enforcement of the shares might be delayed by one or more civil actions, including preliminary injunctions, in order to obtain a judgment to the effect that the enforcement procedure is in accordance with the Financial Collateral Act and the parties’ written agreement.
However, it is considered unlikely that a Norwegian court would ultimately set aside the parties’ valid and binding agreement with respect to the realisation process. Apart from the normal procedural risks involved, should the security interest or the enforcement steps be litigated, the enforcement of pledged shares in accordance with the Financial Collateral Act is swift, cheap and leaves the secured party in greater control of the enforcement process.
Finally, it should be noted that an enforced sale of shares is, under Norwegian law, not exempted from requirements for competition clearance, which may impact the sales process in certain cases.
Enforcement of Monetary Claims
For receivables and other monetary claims (including intercompany claims or amounts standing to the credit of the chargor on a bank account), the secured party has the same right of disposal as the chargor unless otherwise agreed between the parties. It is common market practice in Norwegian security agreements to agree that the secured party may only dispose of such claims upon an event of default which is continuing (or such other trigger as may be appropriate).
The involvement of the enforcement authorities is therefore not required on enforcement. The secured party can simply instruct the debtor of the claim (ie, the intercompany debtor or the relevant account bank) to pay the amount directly to it in case of an enforcement event. A charge of a bank account may also follow the procedures prescribed by the Financial Collateral Act, and the parties can agree on a different enforcement procedure prior to an event of default.
Enforcement of Security Over Other Assets
In case of most other security assets, the enforcement must comply with the requirements set out in the Norwegian Enforcement Act unless the parties have agreed on an alternative enforcement procedure after the occurrence of an event of default. Any agreement on alternative enforcement procedures prior to such event will not be enforceable.
The Enforcement Act sets out the procedures and requirements for the forced sale of various assets. The extent and duration of the sales process vary and depend on the type of asset being sold (for instance, the process related to a forced sale of real property or a vessel is generally more complex than the sale of movable assets).
In order to commence enforcement proceedings under the Enforcement Act, a mortgagee must file a petition for enforcement before a Norwegian court and it must be shown that the claim is valid, due and payable and that an event of default has occurred, all of which is typically done with a reference to the terms of the security agreement, mortgage registration document and/or the underlying loan facility agreement secured by the mortgage. Before filing such a petition for enforcement, the mortgagee must normally send a written formal notice to the mortgagor. Such notice cannot be sent before the claim is due and payable, and the mortgagee must state in the notice that formal enforcement proceedings will commence if the mortgagor fails to remedy the default. Further, the enforcement proceedings may only commence if the mortgagor has failed to remedy the default 14 days after written formal notice has been given stating that formal enforcement proceedings will commence if the mortgagor fails to remedy the default. The written formal notice must be submitted to the court along with the petition for enforcement of the mortgage.
In a petition for enforcement of the relevant asset, the mortgagee must state whether forced usage of the asset or a compulsory sale of the asset is desirable. The court has the authority to decide the length of the time of the forced usage and the court may also set out certain terms for the forced usage. The maximum period of forced usage is two years, unless the court prior to the expiry of the usage period grants an extension of the usage period. For other assets than those referred to above, a compulsory sale will be the relevant type of enforcement.
If the necessary conditions are fulfilled, the court must notify the mortgagor with a written formal notice and give the mortgagor the opportunity to submit a written statement to the petition within one month (if relating to real property, vessels, aircrafts or other assets registered in an asset register) or two weeks (if relating to other assets) after such notice is given. Thereafter, if the court, despite the written statement of the mortgagor, still is of the opinion that the necessary conditions are fulfilled, the enforcement proceedings will commence.
The court decides whether the manner of enforcement shall be made by way of a sale through brokerage channels or through a forced sales auction. The court decides the manner of enforcement based on what it anticipates to be most profitable.
When the enforcement proceedings are completed, either by way of a sale through brokerage channels or a forced auction, the mortgagee has a preferred right to the sale proceeds. The court, however decides upon the distribution of sale proceeds, and the costs related to the compulsory sale are covered first and then the secured creditors, in order of priority.
In a Norwegian acquisition financing it is typical to include a corporate guarantee very similar to the form included in the standard LMA documentation. Under the former Financial Agreements Act (which was replaced by a new act that came into force on 1 January 2023), it was a requirement for any guarantee to be valid that the guarantor’s liability was limited by a capped amount. Albeit the new act does not impose the same rule, it is still market practice to include such a monetary cap, and most often this will be set at the total amount of the loan facility/ies plus an additional amount of some 10–20%.
When structuring a Norwegian acquisition financing, note should be taken of the Norwegian interest deduction limitation rules for related parties as, for example, downstream guarantees or security from bidco (other than a share pledge over the Target shares) or its parent may lead to external loans being deemed as internal loans and thus have a negative impact on interest deduction.
Please refer to the discussions in 5.5 Financial Assistance and 5.6 Other Restrictions.
As a starting point, all intra-group transactions shall be made on “ordinary commercial terms and principles”, which entails that a guarantee fee may, in many instances, be appropriate and required. Again, please refer to the discussions in 5.5 Financial Assistance and 5.6 Other Restrictions.
Norwegian law does not recognise any equitable subordination or reordering of priority of claims based on equitable principles or similar to be carried out by a bankruptcy court. Norwegian bankruptcy law instead provides for the ranking of creditor’s claims according to a statutory order of priority as follows:
Contractual subordination, however, is both recognised and customary (see 4. Intercreditor Agreements) – either as a fully subordinated loan (No ansvarlig lån) which is categorised as a separate class of loans that will rank behind all pari passu debt (but ahead of equity), or as an agreed form of subordination with turnover obligations, etc.
A Norwegian company may manage its assets and capital as desired, as long as the company’s creditors are not exposed to an unacceptable, unforeseen and substantial risk of loss. Thus, the managing director and the board of directors are entitled to take reasonable risks in the ordinary course of business.
When a company is insolvent (or verging on insolvency) – ie, displaying a continuing non-temporary inability to pay its debts as they fall due (“cash flow test”), while at the same time having liabilities that exceed its assets (“balance sheet test”) – certain transactions made prior to bankruptcy may be subject to a reversal by a bankruptcy estate pursuant to the Norwegian Creditors Recovery Act (NoDekningsloven).
Certain transactions (such as extraordinary payments, security for old debt, under-value disposals, etc) effected by the debtor within a certain period of time prior to the commencement of bankruptcy proceedings may be revoked/clawed back. The rules apply in bankruptcy proceedings and compulsory compositions, but not in any other formal or informal rescues.
Reversal of claims by the bankruptcy estate particularly applies to certain transactions carried out in the three-month period (up to a two-year period for closely related parties) prior to the bankruptcy, which are reversible irrespective of any irregularities (ie, on an objective basis). Such transactions include payment of certain debts, and security granted for “old debt”, something which should be taken into account when doing a security take-up post closing.
Extraordinary payments of debt during the last three months prior to bankruptcy may also be reversed (on an “objective” basis) if the payments are:
Payment of a creditor, by way of transfer of the company’s assets, will not, under any circumstances, be regarded as ordinary and would most likely weaken the company’s ability to pay its other creditors. A sale of the company’s assets at fair market value should, however, not be subject to reversal.
Security granted by the debtor during the last three months prior to bankruptcy, securing either:
may also be reversed.
The “Subjective” Rule
A time limit of ten years applies if the creditor ought to have had knowledge of the insolvency and the circumstances which made the transaction between the creditor and the debtor improper.
What is improper will have to be determined in each case. Pursuant to case law, the disposition will have to be “qualified blameable”, when considered objectively. It has also been described as unfair/disloyal with regard to the other creditors.
Effect of Reversal
If the transaction were to be set aside under the objective rules, the receivable amount is limited to the gains obtained by the receiving creditor. If the transaction is set aside under the subjective, the liquidator is entitled to demand full compensation for the loss suffered by the company due to the transaction.
No stamp or documentary taxes are applicable in connection with the establishment, trading or enforcement of a loan made under Norwegian law. Also, there is no stamp duty on taking security in Norway, save for over aircrafts. Minor perfection or registration fees apply to security registered in an asset registry as explained in 5.1 Types of Security Commonly Used. Court fees for enforcement procedures are also nominal and unrelated to the amount of the loan or security in question.
The current Norwegian tax rules for imposing withholding tax on interest payments only apply to interest payments made to affiliated parties of the borrower. Moreover, the affiliated party must be resident in a low tax jurisdiction (tax jurisdiction with a tax rate lower than 14.67%). An affiliated party of the borrower is a party which (directly or indirectly) owns or controls more than 50% of the borrower, or if the borrower owns or controls more than 50% of the lender.
The standard LMA FATCA provisions are typically included in loan agreements governed by Norwegian law, albeit Norway has entered into an agreement for exchange of tax-relevant information with the United States (limiting the risk of any FATCA liability for Norwegian lenders).
There are no specific thin-capitalisation rules or general fixed debt-to-equity ratio requirement in Norwegian tax law. However, for companies that are part of the same group, the proportion between debt and equity must be in accordance with the arm’s length principle. It should also be noted that Norway has introduced fairly complex interest deduction limitation rules (see 6.1 Types of Guarantees).
Different industries in Norway are regulated to varying degrees, entailing that completing an acquisition of controlling or large stakes in companies (listed or unlisted) operating within these industries may be subject to approval from the relevant governmental authorities. This applies, for example, for banks and financial institutions, insurance companies, aquaculture businesses and companies involved in petroleum exploration and production as well as pipeline transportation and other critical infrastructure.
The Norwegian government has recently presented a proposal to the Parliament to amend Norway’s Security Act (NoSikkerhetsloven). According to the proposal, the scope of the Security Act would apply in case of entities that are deemed to be of “decisive importance for national security interests”. While the filing obligation under the current Security Act arises upon the direct or indirect acquisition of one third of the ownership shares or voting rights of the target, the new bill lowers this threshold to 10% (with new filing obligations being required when the ownership share or voting rights are increased by certain thresholds). The proposed amendments to the Security Act also provide that notifiable acquisitions cannot be completed before the filing has been reviewed by the authorities, and also prohibits the sharing of certain information prior to completion.
Lenders financing acquisitions of target companies being subject to governmental approval must pay attention to the relevant licensing requirements and other rules governing such regulated companies, including with respect to the taking of security and appropriation or enforcement of share pledges. Also, the licensing requirements vary from sector to sector and must be evaluated on a case-by-case basis. For bidders, it will naturally be important to secure an availability period for the acquisition financing that is sufficiently long to cater for the relevant approval process.
Companies Listed on the Oslo Stock Exchange
The acquisition of listed companies in Norway is subject to special regulations partly based on the EU Takeover Directive (Directive 2004/25/EC), which Norway has adopted and regulated in the Norwegian Securities Trading Act. This means that certain disclosure requirements towards the market apply when a person acquires shares or votes in a listed company as follows: 5%, 10%, 15%, 20%, 25%, ⅓, 50%, ⅔ and 90% of share capital or votes, and this includes any options or other rights to shares held by that person or its related parties.
An acquisition on the Oslo Stock Exchange (OSE) is typically made by way of the buyer launching a voluntary offer for all the shares in a listed target company. Such offer must be notified to, and published by, the OSE, and must be accompanied by an offer document that must be approved by the OSE and distributed to all shareholders of the target. The voluntary offer may be made unconditional or subject to certain conditions being satisfied (eg, due diligence, financing, competition or other governmental approval, certain acceptance rate from shareholders, etc). In any event, the buyer must treat all shareholders equally when making the offer (but different share classes may be treated differently).
However, if the buyer reaches a shareholding of more than one-third of the voting rights in the target company (and with new triggers occurring at 40% and 50%), the buyer must either launch a mandatory offer or sell down below the said threshold(s). Whereas voluntary offers can be made for cash only or as an exchange offer (or a combination of cash or shares), a mandatory offer must always include a cash alternative, and the offer price must equal at least the highest share price paid by the buyer during the last six months prior to the mandatory offer. In addition, a mandatory offer must be made unconditional, meaning that the buyer must have certainty of funds before making the offer.
Typically, therefore, before launching a bid for a listed company, a buyer will have secured the necessary debt financing by having signed a loan agreement with LMA-style certain funds provisions and only customary conditions precedent for utilisation, and any financing condition (in a voluntary offer) will be lifted if and when the offer is being made unconditional or a mandatory offer becomes required. For the lenders, it will be important to include in the loan agreement certain offer undertakings; eg, that the buyer does not buy shares outside the offer at a higher price (thereby increasing the mandatory offer price), that all rules and regulations of the OSE are complied with, etc. It is also common for lenders in such transactions to request a pledge over the buyer’s securities account with the Norwegian Securities Register (VPS) into which all the acquired shares will be transferred.
It should also be noted that settlement of a mandatory offer must be backed by a bank guarantee towards the OSE (on behalf of the target shareholders), and that such guarantee must be placed by a bank authorised to carry out business in Norway. The bank guarantee must amount to the total number of the target shares multiplied by the offer price, and must remain outstanding up to four weeks after the offer has closed.
If the buyer, through the offer (or subsequently), acquires more than 90% of the voting shares in the target company, it may initiate a compulsory acquisition (squeeze-out) of the remaining shares (and the minority has the right to demand the buyer to make such compulsory acquisition), and also effectuate a delisting of the target company. In many transactions, lenders will require the buyer to complete such a squeeze-out as soon as the 90% threshold has been reached in order to avoid future leakage to minority, achieve delisting, etc.
Companies Listed on Euronext Growth
A significant number of companies has been listed on Euronext Growth Oslo (EGO) during the last few years, and it is expected that a fair amount of these companies may be taken private in the future.
The takeover rules of the Norwegian Securities Trading Act described above do not apply to companies listed on the EGO, most notably so that a buyer is under no obligation to immediately disclose acquisition of large shareholdings (or rights to shares) and the rules on offer documents and mandatory offers do not apply. This gives a buyer more flexibility both with respect to confidentiality, pricing, terms and volume in its stake-building when preparing for a takeover; something which also will have implications on the terms of financing.
All relevant considerations have already been addressed.
Postboks 1484 Vika
+47 23 11 11 firstname.lastname@example.org www.thommessen.no/en/
Highlights and Summary
The national economy of Norway remains relatively strong, and the economy has benefited further from exceptionally high oil and gas prices in 2022. Unemployment is still very low, but inflation and rising interest rates create uncertainty. Norges Bank’s policy rate has been increased to 3.25% (as at 4 May 2023) to bring down inflation and strengthen the Norwegian krone (NOK) which has weakened significantly against the dollar and euro over the past few years.
After unusually high activity in 2021 through the beginning of 2022, M&A deal activity slowed down in Norway in the second half of 2022. Plans for IPOs have been pushed out, reflecting the overall trend in many jurisdictions as a result of the general global economic uncertainty. This development continues to paint the picture going into 2023, and there is probably a need for recalibration of value expectations on sell side for the M&A activity to regain real momentum. Conversely, the weakening of the krone may attract additional investors to the Norwegian M&A market. We have also started to see an increase in public-to-private transactions as a trend.
Although Nordic banks are still lending and the Norwegian bond market has shown some resilience in the beginning of 2023, access to debt financing remains challenging. In particular, the lack of available debt financing has led to a halt of real estate transactions. On the other hand, large M&A transactions have been completed within the oil and gas, renewables, infrastructure and aquaculture/seafood sectors in the last 12 to 18 months.
Despite the high deal activity in recent years, the market for traditional leverage finance in Norway has been relatively quiet compared to previous years. While some of the slowdown is caused by the more limited access to debt financing, part of this is attributable to many sizeable deals having been made by large corporates or private equity companies not dependent on immediate access to credit markets.
Investors and lenders in Norway are increasingly focused on environmental, social and governance factors (ESG), which has led to a rise in infrastructure M&A and a corresponding increase in the importance of ESG considerations in those acquisition financings. This focus is expected to continue to strengthen in the future, which will lead to both sponsors and companies giving more attention to their ESG footprint to ensure improved access to financing at a reduced cost.
The State of Norwegian Acquisition Finance
A strong state economy, but uncertainties ahead
Norway’s economy remains relatively strong, and the national economy has benefited further from exceptionally high oil and gas prices in 2022. Norwegian banks, with DNB Bank ASA being the largest, are also considered to be well equipped to weather a sharp economic downturn, due to the high creditworthiness and solidity of these institutions.
The activity in the Norwegian economy also remains high, with a low unemployment rate and a tight labour market. However, inflation is now at 6.5% (March 2023), which is largely driven by high energy prices, but also increased prices for other goods and services; something which in turn is expected to drive nominal salary levels. Like in most countries, the Norwegian central bank is monitoring the inflation closely, and Norges Bank’s policy rate has been steadily increased over the last 18 months in an effort to keep inflation low and stable. The central bank’s policy rate is now at 3.25% (as at 4 May 2023) and is expected to further increase, but the interest rate is still at a lower level than in most of Norway’s trading partners.
At the same time, the Norwegian krone has depreciated quite significantly against the dollar and euro and is now at its weakest point since the start of the pandemic. This is a challenge for Norway’s open economy, being largely dependent on import of goods, and a weak krone continues to make it challenging to bring down inflation and interest rates. While the weakening of the krone is expected to put further strain on national inflation, the depreciation may lead to a higher demand for certain Norwegian exports. The largest contributors to the Norwegian export economy, oil and gas, are traded in US dollars and will therefore have a positive impact on the Norwegian trade balance.
Bank funding remains the predominant source of funding
Bank lending still remains the most important funding source for corporates and financing of acquisitions in Norway. The Nordic banks are the most notable lender-side players in acquisition financing transactions, with DNB Bank ASA being the largest, but international banks are very much present in larger transactions. This is particularly prevalent where the companies or assets financed are related to the oil and gas industry, renewables or infrastructure sectors.
Direct lenders and international debt funds are also present on some Norwegian deals, but due to the strict Norwegian financial regulatory regime (with lending being a regulated activity) direct lending is not an alternative funding source in Norway to the same extent as in many other countries. This may, however, be different where the financing transaction is being arranged outside Norway.
The Norwegian bond market
An increasingly important source of funding is the Norwegian bond market. Over the last ten to 15 years, the bond market in Norway has seen strong growth within the corporate and high-yield bond market, both in terms of number of issuers and issued volume, as well as the range of industries represented in the market. The market has also become significantly more international, with a bigger share of foreign issuers and investors.
The Norwegian bond market is recognised for being effective, transparent, highly professional, with short lead time, low transaction costs and less complex documentation. Nordic Trustee plays a key role in ensuring a highly functioning bond market as a trustee by ensuring a smooth issuance process, reviewing bond documentation, monitoring issuers’ reporting and compliance with bond covenants, attending to the creditor rights of all investors in relation to issuers and generally facilitating the bond market.
There is a continuing migration from traditional bank financing to Norwegian bonds, and an expansion of the product range – and increasingly also into the acquisition finance space. In recent years, several acquisition financings originally financed by bank lending have been taken out by bond issues (bridge to bond). Further, an increasing number of acquisitions in Norway have been financed by way of a bond financing the acquisition price in combination with a super senior bank financing – or by a combination of junior and senior bonds, and we expect this trend to continue.
We have also seen an increase in the placement of private bonds with one or only a few investors, which rely on the infrastructure of the Norwegian bond market, but which contains more tailored terms than what would be expected from deals which are offered to the wider market of investors.
The success of the Norwegian high-yield bond market has also most likely contributed to the relatively low number of deals with direct lenders in Norway.
Doing financing transactions in Norway under Norwegian law
Acquisition financing transactions provided by banks are mostly documented under Norwegian law, always in the English language and drafted on the basis of the form of loan documentation of the Loan Market Association. Norway’s energy and shipping industries have been important in getting non-Norwegian lenders comfortable with finance documents governed by Norwegian law and subject to Norwegian courts; something which often contributes to efficient processes and lower transaction costs. We see the same trend in the financings relating to infrastructure and renewables, where large international banks participate as lenders alongside Nordic banks on loan documentation governed by Norwegian law.
The Norwegian bond market has developed its own template loan documentation that is commonly used in high-yield transactions.
Recent Transactions and Market Developments
The years 2020, 2021 and the beginning of 2022 saw an exceptionally high activity level in Norway with a record number of M&A transactions, new IPOs and listings. However, as in most countries, Norway witnessed a very uncertain market in the second half of 2022, resulting from the general global economic uncertainty, with a significant fall in M&A deals and plans for IPOs being postponed or aborted.
Limited access to debt financing
Lower deal activity continues to be the main trend going into 2023, and more limited access to favourable debt financing definitively plays a major part in this development. Although Nordic banks are still lending and the Norwegian bond market has shown some resilience in the beginning of this year, access to debt financing remains challenging, and within certain sectors, such as commercial real estate, transactions have more or less reached a full stance. There is probably also a need for recalibration of value expectations on sell side for the M&A activity to regain real momentum.
However, several large M&A transactions in sectors that are traditionally strong in Norway have been completed predominantly with bank lending in the last 12 to 18 months.
Lower number of leverage finance transactions
Nevertheless, the number of traditional leverage finance transactions in Norway has been relatively few and far between in recent years compared to previously. While some of this slowdown is obviously caused by the limited access to favourable debt financing, part of this is attributable to many of the deals having been made by corporates or private equity companies that do not require immediate access to credit markets to complete their acquisitions. This was maybe particularly relevant during the active 2020-2021 period, when many growth investments were done without any significant raising of debt due to the amount of equity being available in the market. Restrained access to debt financing (and the increased pricing for such funding) has also led to more creativity when it comes to deal structures, funding and settlement mechanisms; eg, by creating joint ventures and partnerships between corporates and private equity firms.
Increased focus on infrastructure, ESG and green energy M&A
Norway has set ambitious targets for reducing its greenhouse gas emissions and transitioning to a low-carbon economy, with the aim of achieving carbon neutrality by 2030. To meet these targets, the government has announced plans for investing heavily in renewable energy and energy technology. In particular, there has been significant recent activity in promoting new offshore wind projects, clean battery production and carbon capture projects.
These are capital-intensive projects, and will initially be expected to be financed by equity or a combination of equity and project finance with government-backed guarantee schemes. The grand size of the projects means that many projects will be carried out by consortiums, and we see large industrials teaming up with smaller newcomers. We expect increased M&A activity and investment opportunities within these sectors in the coming years, however it is expected that this will follow first when the relevant projects are up and running and mainly be relevant to exits or syndication in consortiums. Given the project finance level expected, it is not expected that M&A transactions relating to standalone projects will be funded by acquisition finance. However, unleveraged assets may be attractive to investors, and suitable for acquisition finance.
As in most countries, investors and lenders in Norway are increasingly focused on ESG factors, which has led to a rise in infrastructure M&A and a corresponding increase in the importance of ESG considerations in those acquisition financings. Several notable transactions within this space have been referred to above, including those within public transport infrastructure. It is expected that this focus will continue to strengthen in the future, and that this will lead to both sponsors and companies giving more attention to their ESG footprint to ensure improved access to financing at a reduced cost.
Looking ahead, the market remains very uncertain, and it is maybe difficult to see M&A deal activity picking up without a real reset in the value expectations of the sellers because the market is currently in a “wait-and-see” state.
However, we expect that the recent increase in the number of public-to-private transactions will continue. Especially, the market expects a surge in acquisitions of smaller cap companies listed on the Euronext Growth, which marketplace has experienced significant declines in share prices in the aftermath of the very active market for listings a few years ago. We also expect to see an increase in exit transactions from private equity sponsors which are carried out by way of M&A, rather than IPOs, due to the more challenging equity markets. We also believe bank lending and other financing sources will continue to be available for the right target, although at a higher pricing and on tighter terms than what buyers and sponsors have been used to previously.
The weakening of the krone is expected to lead to increased attention for Norwegian assets, which may attract additional investors to the Norwegian M&A market. In addition, recent increases in the Norwegian wealth tax may give foreign investors lower cost of capital compared to Norwegian owners, further skewing the Norwegian M&A market in favour of foreign capital. Other changes to the tax system, including the special natural resources tax now being introduced on salmon farming, may also incentivise structural changes resulting in M&A transactions within that sector.
We also anticipate that the focus on ESG will continue to strengthen, leading to increased activity by both Norwegian and foreign investors within renewable energy and infrastructure, which are sectors that will continue to grow in the coming years, and we expect that this development will be further fuelled by new regulations within ESG which will incentivise investments within these sectors.
Nevertheless, it seems inevitable that the general economic uncertainty will continue to affect the overall level of M&A activity, and may make it more difficult to bridge the gap between prospective sellers and buyers. The instability in financial markets will also continue to affect the access to different sources of capital, and this will likely impact the availability of capital and method for financing M&A activity in Norway in the coming years.
Postboks 1484 Vika
+47 23 11 11 email@example.com www.thommessen.no/en/