The following factors impact the trends and direction of the loan market in Israel.

• The continued high level of interest rates.
• The political and economic effects of the ongoing war in Gaza between Israel and Hamas, also involving other countries such as Iran, Lebanon, Syria and Yemen.
• A decrease in the involvement of foreign participants in the Israeli lending market.
• Increased participation of non-banking lenders and ongoing co-operation among banking and non-banking lenders.
• Concerns regarding the volume and high leverage ratios of borrowers, particularly in residential mortgages.

Despite pessimistic economic forecasts and the current political situation, the number of insolvencies and restructurings has not increased substantially to date, despite a slowdown in growth and other economic factors.

Israel is affected by regional conflicts with Gaza, Iran, Yemen and others. There are also concerns regarding possible future seclusion of Israel from certain financial markets, especially in the EU. Israel is also indirectly affected by the continued sanctions against Russia and the sanctions imposed on Russian players. Thus far, the impact of these conflicts over Israel’s economy and loan market is contained.

The high-yield market in Israel is relatively small and has not changed significantly in recent years. As a result, this market has not had a substantial influence on the financing terms and structures in Israel.

Recently, the Israeli government published a legislative proposal to regulate securitisation transactions. This proposed legislation covers a relatively narrow scope of transactions, and the legislative process is expected to take at least one to two years. Moreover, the proposed legislation is intended to regulate such transactions in a manner which will allow them and not block them. Therefore, the impact of this initiative on financing structures remains unclear.

The role and market share of non-banking lenders, including institutional investors (such as insurance companies and pension funds) and private lenders have increased over time and continue to grow. Additionally, there is increasing co-operation between banking and non-banking lenders, including through syndicated lending, joint marketing and sale of credit portfolios, typically involving the purchase of loan portfolios by banks and institutional investors from private lenders.

The role of non-banking credit providers is evident and substantial in certain markets, eg, BNPL transactions, car sale loans and mezzanine loans to entrepreneurs in the real estate market (especially in the urban renewal market). Their role is currently less noticeable in the market for mortgages for residential apartments. Non-banking lenders also utilise fintech solutions to market loans to consumers.

The law also allows for the extension of credit through P2P platforms but, although a few entities attained such licence and operate such platforms, their market share and impact is currently insignificant.

The use of advanced finance techniques, including HoldCo structures and preferred equity, is more prevalent among foreign lenders, particularly in venture lending. Such techniques are also common in the sale and securitisation of credit portfolios, even before the finalisation of the securitisation legislation. Securitisation often involves the formation of special purpose vehicles (SPVs), but sometimes a contractual CLN/non-recourse mechanism is used instead of SPV structures.

The use of derivatives as an alternative to secured lending is becoming more common, although the use of credit default swaps (CDS) in Israel remains relatively low.

Foreign acquirers of Israeli companies frequently use holding company (HoldCo) structures, which are familiar from other jurisdictions and facilitate the raising of acquisition finance from overseas lenders.

ESG-related considerations are increasingly discussed and there is a growing perception that ESG is becoming more and more important in Israel. However, the actual impact remains relatively minor and implementation is still partial, although both are expected to increase in the forthcoming future. In projects involving European participants the impact is more significant as such participants implement the standards applicable to them.

The Israeli government supports a loan fund that includes a sustainable energy track, further highlighting the growing emphasis on “green” finance and potentially accelerating the implementation of ESG in finance. There are also discussions about implementing carbon fines and rewards, which may further enhance the effect of ESG.

Requirements vary according to the classification of credit providers.

• Banks – the licensing of banks is stringent and demands significant capital investment and compliance with comprehensive regulatory requirements. The Bank of Israel recently published a plan to lower these requirements for smaller size banks or to banks with limited scope of services. Due to these requirements, there have been no material changes to the banking sector and market over the last few decades. During the last five years, two new banks received a banking licence, after four decades in which no new licence was granted. Nonetheless, the said new banks are digital banks with relatively limited scope of services, and they currently have little influence over the banking market.
• Institutional investors – the licensing of insurance companies and pension and provident funds is also stringent and requires significant capital investment and compliance with comprehensive regulatory requirements. During the last decade, the regulator expanded the types of lending activities that institutional investors are allowed to engage in, but did not change the conditions for authorisation of such institutional investors.
• Private lenders – private credit providers engaging in the provision of credit in Israel are subject to licensing requirements, which are less stringent than those applicable to banks and institutional investors. Since the licence requirements came into force, more than 800 entities obtained a basic credit licence, which allows such credit providers to extend credit up to ILS25 million, and more than 200 entities received an extended credit licence, which allows such credit providers to extend an unlimited number and volume of loans.
• P2P platforms – operators of platforms for the extension of credit in a P2P model, where the operator does not lend its own funds but rather enables lending and borrowing among the users of the platform, are subject to licensing requirements which are less stringent than those applicable to banks and institutional investors, but are somewhat more stringent than those applicable to “ordinary” private lenders. Currently, only seven entities obtained licences of this type and their market share is relatively small.
• Exemptions – certain exemptions apply to private lenders, which are also applied to foreign banks lending into Israel. The most applicable exemptions include:
1. banks incorporated and licensed in OECD countries, provided that such banks are supervised for AML purposes in such OECD countries and do not engage in activities that trigger a banking licence requirement in Israel (namely: acceptance of deposits and (i) extension of credit, or (ii) management of current accounts with cheques);
2. lenders controlled by such OECD banks, which comply with the said criteria and do not extend retail credit;
3. insurance companies incorporated and licensed in OECD countries, provided that such insurance companies are supervised for AML purposes in such OECD countries and do not engage in lending to retail clients;
4. dealers in derivatives/repo/securities transactions, with respect to credit extended in connection with such transactions, and subject to additional conditions;
5. certain types of venture lending – credit designated to corporate borrowers whose main activity is R&D or development and manufacture of innovative or know-how-based products or services, and where the risk of investing in such borrowers is higher than typical investments; and
6. lenders that solely provide large business loans to corporations (non-retail) – there is a threshold for the minimum value of such loans.

The regulatory framework applicable to all licensed credit providers includes comprehensive AML/CFT requirements.

Foreign lenders are not restricted from providing loans in Israel, but they must do so under one of the exemptions from the licensing requirements. Refer to section 2.1 Providing Financing to a Company for the main exemptions. In a nutshell, licensed banks and insurance companies incorporated and regulated in OECD countries, including with respect to AML duties, are exempt from such licence requirements.

In addition, foreign lenders may rely on the position paper published by the Capital Markets Authority which provides criteria regarding the territorial applicability of the Israeli licensing requirement and for lending not subject to Israeli regulations:

• the loan documents are not in Hebrew, are signed outside of Israel and are subject to foreign law;
• the lender extends the loan by depositing the loan amount in a bank account outside of Israel;
• the lender does not conduct any marketing activities in Israel; and
• the lender does not hold meetings in Israel.

These conditions are cumulative.

Foreign lenders can also apply for a credit licence in Israel. Currently, a credit licence requires that the licence provider will be incorporated in Israel, and this will require such foreign lenders to establish a subsidiary for such activity. Registration of a branch does not qualify.

Generally, there are no significant restrictions on providing security or guarantees to foreign lenders directly, or security agents (local or foreign) on their behalf.

However, obtaining a security interest (by both local and foreign lenders) over shares in certain regulated companies (eg, banks, insurance companies, telecommunications or natural gas companies) may require a permit depending on statutory or licence conditions. Loans secured by intellectual property developed with funding from the Israel Innovation Authority (IIA) require foreign lenders to undertake that enforcement will occur in Israel and be subject to the relevant law.

Note that the receipt of such security as part of a credit transaction may raise questions regarding licence requirements which may apply to the credit transaction.

There are no restrictions or controls over the use of foreign currency and its exchange, except for restrictions relating to several countries declared as “enemy countries”. AML/CFT controls apply, among other things, to currency exchange and cross-border payments. The provision of foreign exchange services in Israel is subject to licensing requirements, with certain exemptions.

There are no restrictions on the use of proceeds by borrowers, except for the use of proceeds for illegal purposes.

Within the limitation on the use of cash exceeding certain amounts in transactions, there may be limitations on the acceptance of loans in cash (subject to exceptions). The use of the proceeds may be subject to AML reporting by relevant regulated service providers.

The concepts of trust and agency are recognised under Israeli law, and there is therefore no need to use alternative structures.

Trusts are not considered legal entities in Israel, and the actions of a trustee are performed under the name of the trustee. Nonetheless, since the concept of a trust is recognised, the actions of the trustee are not attributed to the trustee’s personal affairs and are separated from such personal affairs.

The Israeli Tax Ordinance recognises the concept of trusts and sets forth a tax regime applicable to trusts. The said tax regime distinguishes between the taxation of creators, trustees and beneficiaries which are residents of Israel or foreign residents. The Tax Ordinance also imposes reporting duties.

Loans in Israel can generally be freely assigned without requiring the consent of the borrower, but subject to providing notice to the borrower, unless assignability is restricted by the loan documents or by law, particularly for loans secured by regulated assets or those requiring a permit. Although such assignment does not necessarily require the lender to include a specific contractual arrangement within the loan documents, it is advisable to have a clear contractual provision that entitles the lender to do so (most lenders indeed add such contractual provisions).

Certain regulated entities have specific restrictions on the assignment of loans: banks are subject to certain requirements when assigning mortgage-backed debts if the recipient is not a bank or insurance company.

The disclosure of information about the debt and the debtor in connection with the assignment may require the consent of the debtor, but such consent can be, and is often, included in the credit documents, subject to compliance with privacy protection regulations. Typical contractual provisions usually included in loan agreements normally address this matter.

Upon assignment of a loan, any collateral securing the loan is also transferred by operation of law, though a change in the registration may be required to perfect the security interest in favour of the assignee. When perfection of the security interest requires registration with the relevant registry (eg, Registrar of Companies, Pledge Registry, and Land Registry), the assignment of such security will require registration as well.

Debt buybacks by the borrower or sponsor are permissible under Israeli law.

With respect to mortgage-backed loans and loans secured by a pledge over assets or rights, the right of the borrower to buyback is set forth in the law and cannot be waived. In certain cases (eg, buyback of mortgage-backed loans provided by banks), there are limitations on the commission or other fees imposed upon buyback.

There are additional requirements applicable to the buyback of listed bonds.

With respect to loans extended to individuals (as opposed to corporations), the Fair Credit Law requires proper disclosure of the right for buyback and the terms thereof. Nonetheless, the said law does not define such terms or require lenders to always allow the borrower to perform such buyback.

Israeli regulations do not expressly address “certain funds” conditions, and there are no provisions explicitly imposing regulatory requirements on this matter. There are customary contractual terms that may impose similar provisions but while these provisions are relatively common, they are not mandatory.

The following recent developments have required certain changes to legal documentation of credit facilities and security documents.

• The Fair Credit Law 1993, which applies to loans provided to individuals, was amended in 2023 and required additional disclosures, limited the interest rate and added further regulatory requirements.
• The Insolvency and Economic Rehabilitation Law 2019:
1. changed many of the terms used in the context of insolvency;
2. changed the procedure for enforcement of security interests of entities under insolvency proceedings;
3. disallowed creditors to unilaterally terminate agreements upon insolvency; and
4. required that 25% of the proceeds from realising floating charges will be distributed to unsecured creditors.
• Changes to the privacy protection legislation required amendments to the provisions in loan agreements relating to the collection, use and transfer of data.
• The application of the Credit Data Law, 2016, which includes the collection of information relating to credit provided to individuals to a centralised database managed by the Bank of Israel and the use of such information by authorised credit data bureaus, required proper documentation, addressing:
1. disclosure of the transfer of information to the centralised database and the use of credit indications; and
2. consent of the borrower for obtaining detailed credit reports regarding the borrower.
• The Financial Data Service Law 2021 requires lenders to co-operate with licence providers of financial data services, including financial consultants, aggregators of information and providers of price comparison services. The said changes sometimes require amendments to the loan documentation.

On the commercial side, the increased activities of non-banking lenders and the increased sale of credit portfolios among lenders of various types made it necessary to comprehensively address the right to assign the loans and the backing securities, as well as changes which may be required upon such assignments.

Israeli law provides maximum interest rates on certain loans.

Loans to individuals are subject to a maximum interest rate and a maximum penalty interest rate.

The maximum rate for loans in local (Israeli) currency is based on a margin of 15% per annum over the base interest rate published by the Bank of Israel (the effective maximum rate is currently 19%).

The maximum rate for loans in foreign currency is LIBOR plus 15% per annum. The law was not formally updated but the Secured Overnight Financing Rate (SOFR) will probably be taken as the base interest.

The maximum penalty interest rate is the maximum (ordinary) interest rate multiplied by 1.2.

For index-linked loans in the new Israeli shekel, the maximum interest rate that can be applied on the linked loan is 13% per annum; the maximum penalty interest rate is 17%. Note that this limit may also apply to loans extended to corporations.

In insolvency proceedings, interest exceeding a certain rate is deferred and is paid only after the repayment of unsecured debt (which means that such excessive interest is rarely paid).

Companies whose securities are listed on the Tel Aviv Stock Exchange are required to publicly report material information relating to significant financial contracts. Such disclosure is subject to regulations promulgated under the Securities Law 1968 and to instructions issued by the Israeli Securities Authority. The disclosure is included in the financial reports of the listed company. Additional immediate reports may be required upon execution of new contracts, material changes therein as well as defaults.

Large foreign credit may be subject to reporting to the Bank of Israel (for research and statistical purposes).

Interest payments and payments deemed to be interest (such as discounts on convertible loan securities or discounts on assignment of cheques and receivables (“factoring”)) made by Israeli borrowers are subject to withholding tax by certain borrowers, currently at 23% for corporate lenders. The said duty applies to borrowers who are corporations and businesses but usually does not apply to individuals with respect to non-business loans.

Reduced rates may be available under tax treaties, subject to approval from the Israel Tax Authority. Recent legislation provides tax exemption for interest paid by high-tech companies to foreign financial institutions, subject to certain conditions.

Most Israeli lenders are eligible for an exemption from such tax withholding; upon presentation of such exemption (which is usually also accessible online) – the borrower is not required to withhold taxes.

Israeli banks are required to withhold taxes when transferring payments to foreign accounts, unless they are presented with an exemption of such withholding duty or are provided with satisfactory evidence that such payments are not subject to tax withholding duty (eg, repayment of principal amount, as opposed to interest).

Interest payments to commercial lenders may also be subject to value added tax (VAT) at 17%, typically handled through a reverse-charge mechanism. Israeli banks are classified as “financial institutions” and are not subject to VAT, but other types of Israeli lenders are normally subject to VAT on the interest and other fees they charge.

There is currently no stamp duty or similar documentary tax on credit transactions in Israel.

Withholding tax is generally deducted at source (by the borrower or by the bank transferring the payments). The tax withholding duty cannot be contractually waived, but this can be addressed and mitigated through gross-up provisions in loan agreements. Additionally, certain lenders may be eligible to exemption from such tax withholding duty, which can be presented to the borrowers and the banks.

Depending on the activities of the foreign lender and local presence in Israel, including whether personnel of the foreign lenders are present in Israel, there may be permanent establishment issues, which could result in Israeli taxation and trigger tax reporting and compliance obligations.

Israeli law recognises both fixed and floating charges. Fixed charges can be created over essentially all types of assets, such as shares, patents, trade marks, real estate, equipment, machinery, receivables, contractual rights and other specific assets. Floating charges may cover all present and future assets of a company (but individuals and partnerships cannot create a floating charge).

Perfection generally requires registration at the Israeli Companies Registry (for companies) or the Pledges Registry (for partnerships/individuals), and, where relevant, at specific asset registries, such as the Land Registry.

Failure to perfect a security interest renders it unenforceable against third parties or insolvency officials. Registration costs are minimal, and registration is typically completed within several business days. Nonetheless, a charge which does not detail the pledges assets or that allows the pledgor to change the pledged assets may be reclassified by a court as a floating charge, regardless of the fact that the parties referred to the pledge as fixed.

There are certain assets of personal nature which cannot be pledged – eg, the salary of an individual up to a certain amount; rights in pension funds; and Social Security payments.

Israeli companies may create floating charges over all present and future assets. Partnerships and individuals cannot create floating charges. If a fixed charge is registered over a fluctuating or unidentified pool of assets, it is subject to the risk of being re-characterised as a floating charge.

Upon insolvency of the debtor, only 75% of the proceeds from the realisation of a floating charge are payable to the secured creditor, and the remaining 25% will be distributed to unsecured creditors. Moreover, the realisation of a floating charge is likely to be performed by the insolvency official (trustee).

It is possible for Israeli entities in Israel to provide downstream, upstream and/or cross-stream guarantees, but when guarantees and security interests are provided within a group of companies, it is important to ensure that the requisite corporate approvals are obtained. Upstream and cross-stream guarantees require particularly careful consideration, as they may be treated as distributions, which may be declared invalid if the statutory distribution tests are not met (profit test and solvency test) and may also be regarded as distributions for tax purposes. Even where such tests are met, upon insolvency of the guarantor or security interest provider, the insolvency official and third-party creditors may challenge payments, particularly in the absence of apparent corporate benefit for the guarantor.

Security or guarantees or any other form of financial assistance provided by a target for the acquisition of its own shares is treated as a distribution and must satisfy both profits and solvency tests. If these tests are not met, the support may be prohibited unless a court approval is obtained, though this is rarely used. An alternative is to merge a new acquisition vehicle into the target, but this approach carries some legal uncertainty. It is common to limit credit support to distributable reserves.

Pledging the target’s shares by the purchaser of the shares is generally not problematic. Note that capital adequacy requirements applicable to banks often classify loans secured by the target’s shares as high-risk loans, thereby increasing the capital requirements of the bank associated with such loan.

As mentioned, obtaining a security interest over shares in certain regulated target companies (eg, banks, insurance companies, telecommunications or natural gas companies) may require a permit depending on statutory or licence conditions.

If the target received government funding, such as from the Israel Innovation Authority, additional restrictions may apply. Contractual limitations on pledging assets should also be checked.

With respect to the mortgage of a residential apartment, it is highly recommended to obtain the consent of the spouse, even if the spouse has no registered rights in the assets, in view of case law that determined that the spouse may have unregistered rights based on the legal “presumption of sharing” among married couples.

Under the Pledge Law 1967, when the secured debt is fully repaid, the pledge is automatically released. Where the pledge was perfected by way of registration, to evidence the release of the pledge and to cause deletion of the pledge from the registry, a standard discharge notice must be filed in Hebrew with the Companies Registry (for companies) or the Pledges Registry (for partnerships or individuals). Assets which were deposited with the creditor should be returned.

Priority among charges of the same ranking is generally determined by the time of creation or registration.

Upon insolvency of the debtor, fixed charges take precedence over floating charges and statutory preferred creditors, while floating charges rank after the statutory creditors and before the general unsecured creditors.

Contractual subordination is possible and can be used to vary priority among lenders. Such provisions survive and are held valid upon insolvency of the borrower, but do not affect the rankings of other creditors who are not party to the subordination arrangements.

Pari-passu arrangements are valid in the relationships of the creditors which are parties to such arrangements.

Where the asset in question is a tangible asset, the creditor who rightfully possessed the asset at the commencement of the insolvency proceedings may have a possessory lien, and its debt may have priority over a secured creditor holding security interest on the same asset. An example is a contractor that holds the asset for the purpose of its repair (eg, a car or machinery).

There is also a possessory lien over amounts due to a party under an agreement that was breached, up to the amount of damages caused by such breach.

In addition, Israeli law recognises the right of set-off, which applies to solvent entities as well as insolvent ones. For solvent entities, the right of set-off usually applies to any mutual debts relating to the same transaction or agreement, and also to mutual debts which are not connected to the same transaction or agreement, if such mutual debts are in fixed amounts and are not based on appraisal/estimation. When one of the parties becomes insolvent, the law specifies conditions for the ability of a creditor to offset mutual debts. Subject to these conditions, such right of offset precedes the rights of other creditors.

The tax authorities have a statutory preference over secured creditors holding security interests on real estate assets with respect to certain real estate taxes.

Lenders may enforce collateral upon the occurrence of “trigger events” specified in the security documents. Outside of insolvency, enforcement is typically carried out through the courts or the execution office, often involving a receiver and public auction. In insolvency, the court decides whether to pursue rehabilitation or liquidation, with possible moratoria on enforcement during rehabilitation (subject to adequate protection for the secured creditor). Fixed or floating charge holders may enforce security during a moratorium if adequate protection cannot be guaranteed or if enforcement should not jeopardise the arrangement. In liquidation, secured creditors are not subject to the moratorium.

Self-enforcement without judicial process is not permitted, except that in non-insolvency scenarios, the debtor may agree to self-enforcement after the due date of the secured debt. Consent granted before such date is not valid.

An exception to this restriction is that banks and institutional lenders licensed in Israel that hold tradeable securities as collateral may independently enforce the pledge by way of selling such securities.

Israeli courts generally uphold the choice of foreign law and submission to foreign jurisdiction. However, if the debtor enters insolvency proceedings, it is possible that the insolvency court will not uphold the foreign jurisdiction contractual arrangement and may apply Israeli law instead of the relevant foreign law, if the application of foreign law may prejudice other creditors.

Waiver of immunity will be upheld.

Additionally, mortgages over real estate assets are subject to Israeli law and this cannot be contractually changed or waived.

Monetary judgments from foreign courts are enforceable in Israel without retrial, provided certain conditions are met under the Enforcement of Foreign Judgments Law 1958, including finality of such court decisions, reciprocity (whether or not the other foreign jurisdiction honours Israeli court rulings and allows the enforcement thereof), and compliance with public policy. The opinion of an expert in the foreign law may be required to demonstrate compliance with such conditions.

Arbitral awards are enforceable under the New York Convention, subject to Israeli arbitration law.

Foreign lenders are subject to the same requirements applicable to Israeli lenders and there are no other significant barriers to enforcement by foreign lenders of their rights under a loan or security agreement (except for technical ones, eg, providing a notarised and apostilled POA to the attorneys representing the lender).

In insolvency, the court decides whether to pursue rehabilitation or liquidation of the insolvent entity, with possible moratoria on enforcement during rehabilitation (subject to adequate protection for secured creditors).

Realisation of pledges requested by a creditor requires the approval of the court. The court will not prevent such realisation, except where (i) the pledged assets are essential for the rehabilitation of the insolvent entity, and (ii) the creditor has adequate protection. In other words, fixed or floating charge holders are usually permitted by the court to enforce the security during a moratorium if adequate protection cannot be guaranteed or if enforcement should not jeopardise the arrangement. In liquidation, secured creditors are not subject to the moratorium (except with respect to any portion of debt that is unsecured).

In cases where the value of the pledged assets seems to exceed the secured debt, the court may order the realisation of the pledge to be implemented by the insolvency official (trustee).

Creditors may independently exercise a right of set-off, subject to compliance with the set-off statutory terms and subject to providing notice to the insolvency official within 30 days of the time the creditor became aware of the insolvency.

The order of creditors’ priority upon insolvency is as follows.

• Secured creditors:
1. holders of duly perfected fixed charges; and
2. holders of a possessory lien over an asset – holders of a possessory lien have priority over creditors with a security interest in the same asset.

Among different holders of security interests over the same asset, the security interest created first prevails, unless otherwise agreed among the creditors, and provided that the security interest was properly perfected. Secured creditors who have not duly perfected their security interest are considered unsecured creditors for the purposes of the creditors’ order of priority.

A right of set-off complying with the conditions set forth in the law practically allows priority to the creditor.

• The expenses of the insolvency proceedings – although not typically classified as “creditors’ priority” – are repaid prior to the payment of the debts.
• Statutory preferred creditors:
1. employees, with respect to their wages, up to a certain amount specified by law; and
2. certain tax authorities, with respect to certain taxes initiated prior to the insolvency proceedings.
• Holders of a floating charge (for 75% of the proceeds from realisation of the charge, the remainder is considered unsecured debt).
• Unsecured creditors – among themselves pro-rata to the amount of their respective debts.
• Subordinate creditors – creditors who specifically agreed to be subordinate to other creditors, and, under certain circumstances, shareholders of the insolvent company with respect to loans they made to the company.

The duration of insolvency proceedings varies widely, from a few months to several years, depending on the complexity of the case, the number of objections and petitions, the type of proceedings involved and the types and scope of assets being realised in such proceedings. These factors also influence the rate of recovery.

Temporary measures, such as postponement of proceedings, were introduced during the COVID-19 pandemic to facilitate rehabilitation without appointing an insolvency official. Court-approved debt arrangements are also available, allowing companies to reorganise their debts with creditors outside of the insolvency regime.

The main risks for lenders are the potential delays in the enforcement of contractual rights and security interests once insolvency proceedings commence. The insolvency process is overseen by a court-appointed trustee and stays of proceedings or limitations on enforcement may be imposed.

Another risk is potential claims, that may be raised in the framework of insolvency proceedings, claiming that the security interest was not properly perfected (eg, failure to register the security interest on time).

Security interests created during the three-month period preceding the issuance of an order for the commencement of insolvency proceedings may be unified, unless the creditor can convince the court that the debtor was solvent at the time of the transaction, that the debtor received adequate consideration in the transaction, or that the transaction was in the ordinary course of business of the debtor.

Project finance activity in Israel has been most prominent in the transportation sector (light rail and toll roads) and the energy sector (especially renewables and storage). There are also desalination and military infrastructure projects.

PPP structures in Israel are similar to those in other jurisdictions, with risk allocation generally favouring the government/public sector. There is no general PPP law; instead, sector-specific legislation applies, such as specific legislation for toll roads. Most PPP projects are governed by concession agreements issued through mandatory public tenders, subject to the Mandatory Tenders Law 1992. In electricity tenders, the winner may be required to obtain a licence depending on the size and characteristics of the project.

Concession agreements and most project documents are typically governed by Israeli law, with disputes usually resolved in Israeli courts or by Israeli arbitration. Tender documents often require that the EPC agreement between the concessionaire and the main construction contractor is also governed by Israeli law and subject to jurisdiction in Israel. Agreements with sub-contractors, including major equipment supply contracts, may be governed by foreign law.

Tender documents for major PPP projects require owners, as well as other parties such as major sub-contractors and lenders, to be incorporated and resident in countries with diplomatic relations with Israel. Ownership by non-Israeli entities may require special approval.

Non-Israeli ownership of real estate is subject to an approval process. However, this is not applicable in many cases, since PPP projects usually involve rights of use rather than ownership of real estate.

Lenders must also meet criteria set out in tender documents, which are usually focused on their credit rating, and it is common, but not mandatory, to use a local security agent.

In some cases the realisation of pledges requires the sale of the project to an alternate concessionaire, which must meet the criteria set forth in the tender process for the original concessionaire.

Most large-scale PPP projects require the concessionaire to be an Israeli limited company, though limited partnerships are sometimes permitted, especially in the electricity sector for tax reasons. There are no specific laws governing the structuring of project companies, though accounting treatment may differ.

In many cases the shareholders of the project company are required to meet certain financial or professional criteria.

Project finance is typically arranged by local or international banks, often in syndicates with institutional investors (mainly pension funds and insurance companies). If Israeli institutional investors participate in the financing, under the rules applicable to them, they must require the arrangers to retain a minimum holding, disclose conflicts and fees, and share information.

Export credit agency financing is used occasionally, mainly for key equipment, but project bonds and private equity are less common as sources of senior debt.

Two additional bridge financing structures that are often seen in project finance are as follows.

• Equity Bridge Facility (EBF) extended to finance the equity investment required by the senior project finance lenders and usually secured by external assets and not by project assets.
• Grant Bridge Facility – in many state projects the government is obligated to pay a substantial grant upon completion of construction. Sponsors sometimes take a short-term loan, secured by such grant and payable upon receipt thereof.

Israel’s main natural resource is natural gas, which is highly regulated. Upstream activities are overseen by the Petroleum Commissioner, while midstream and downstream are regulated under the Natural Gas Sector Law 2022. Local supply obligations are imposed, and gas exports require approval.

The electricity grid is not connected to neighbouring countries, so electricity export is not possible.

While there are no specific regulations for financial projects, ESG-related policies are in place. Financial institutions must disclose ESG factors in investment policies, and the Israeli taxonomy provides a framework for assessing environmental impact.

Israeli banks are required to identify, consider and manage environmental risks within their lending activities. A directive of the Bank of Israel that will enter into force in 2026 requires Israeli banks to also manage climate-related financial risks taking into consideration 12 principles (adopted from the Basel Framework).

Environmental permits, such as for air emissions, hazardous substances, and business licensing, are commonly reviewed by lenders as part of the due diligence process in project finance.