Project Finance 2024 Comparisons

For project financings, banks have been and remain the most prominent debt providers due to the extensive and meticulous due diligence, advisory services and follow-up required by lenders. 

On the sponsor side, a great variety of actors are involved, ranging from utility-scale institutional power producers to niche developers specialised in specific sectors. Scale-up companies backed by private equity funds, looking to optimise their capital structure and secure non- or limited-recourse financing, are also often seen.

Public-private partnerships (PPP) have been used to some extent in Norway, albeit with varying intensity – in large due to different governments having diverging opinions on the benefit of using private capital to deliver public services. Among other things, PPPs have been used to finance certain construction projects providing new roads and bridges. In Norway, the objective of a PPP has often been to see if a private solution could reduce construction costs as compared to a publicly managed project, rather than primarily to provide access to financing. Under the current government, there has been a reduction in private services, for example in relation to healthcare and nursery homes. Although not strictly a PPP, the authors believe the trend of public authorities and municipalities selling public infrastructure and buildings to private investors, which either lease the assets back or sell the relevant service back to the vendor, will resurface in a few years’ time.

There are various public regulations and requirements related to governmental activities in Norway. Therefore, any significant transaction with a governmental authority or a wholly government-owned company must be carefully assessed.

A significant factor in the structuring of project financing is determining the legal form of the project company, taking into consideration liability and tax effects, based on Norwegian company-related legislation. An SPV in a project financing, which will require significant investment prior to becoming cash flow-positive, will often be incorporated as an unlimited partnership (delt ansvar (DA)). When an SPV with an unlimited partnership generates taxable income, it will not be taxed at the SPV level, but rather at the level of each individual partner based on their ownership share. Each partner will in turn often be incorporated as a limited liability company and can take advantage of group contributions to offset tax income or losses in other parts of the Norwegian tax group. Through this structure, and generally speaking, partners with taxable income in Norway can benefit from the tax losses in the SPV’s early phase by offsetting such taxable income in other parts of the group. The parties would also need to consider each partner’s recourse to other assets to mitigate the unlimited nature of the SPV’s liability.

For any project financings that involve the acquisition of a Norwegian limited liability company, please refer to 2.5 Restrictions on the Grant of Security or Guarantees, which describes the restrictions on financial assistance. As outlined in that section, in order to be able to benefit from the relevant “whitewash” exceptions, and thereby to be allowed to obtain guarantees and transaction security from a Norwegian target company, the acquiring entity must be incorporated within the European Economic Area (EEA).

Bank financings remain, in the authors’ view, clearly the largest source of project financing in Norway for all construction projects. Export credit-financing providers also often back these structures. There can also be a layering of debt and a combination of debt sources, like bank financing into the SPV and bond and/or corporate financings further up in the holding companies. For project financing within the real estate sector, Nordic bond financings have also been extensively used, particularly for projects that have moved out of the construction phase and into the operations phase (and which are undergoing further development alongside normal operations).

Like many other countries, Norway needs to achieve substantial carbon emissions reductions to meet its obligations under the Paris Agreement; hence, there is a major focus on energy transition projects. The authors therefore expect that there will be much activity around the energy transition industries, covering both renewable energy and power-to-X projects.

This spring, Norway awarded a concession and contract for difference (CfD) to Ventyr for the first offshore wind project on the Norwegian continental shelf, the “Sørlige Nordsjø II” field. The project will have a production capacity of up to 35 MW. It is expected that Norway, as one of the leading offshore nations, will be at the forefront of further developing offshore wind energy over the coming years, although there are still some political discussions that remain to be concluded.

Norway’s position as a leading shipping nation has also triggered an increased focus on green energy carriers, such as biofuels, hydrogen and ammonia produced by renewable energy sources, which make up more than 90% of the Norwegian energy mix, with the shipping industry playing an integral role in backing the projects by securing offtake arrangements.

Assets that are available to lenders in a project financing typically include some or all of the following:

• share security over the project SPV, perfected by the shareholder sending a notice of the security to the project SPV;
• a real estate mortgage over the relevant property (if the project is on leased property, the mortgage can be granted over the lease positions), perfected by registration with the Norwegian Mapping Authority (Kartverket);
• cash deposits on project accounts, perfected by the chargor sending a notice to the account bank;
• assignments of monetary claims under project documents, perfected by the assignor sending a notice to the relevant counterparty;
• assignment of insurance proceeds relating to the project, perfected by the assignor sending a notice to the insurer(s);
• step-in/direct agreements with the project counterparties (no perfection requirements apply as it is not collateral per se);
• a floating charge over trade receivables, perfected by registration of the charge with the Norwegian Movable Property Registry (Løsøreregisteret);
• a floating charge over inventory, perfected by registration of the charge with Løsøreregisteret; and
• a floating charge over operating assets, perfected by registration of the charge with Løsøreregisteret.

Depending on the nature of the financing, licences required for the relevant activity may also be made subject to security.

Guarantees, equity commitment letters, etc, from the sponsor(s) are also commonly seen. All security may be granted, and is usually granted, in favour of a security agent.

It is not possible to assign contracts as a whole under Norwegian law; only the monetary claims that the assignor may receive from any such contract may be assigned. This may cause a problem for project contracts, which in Norwegian project financings (as for other jurisdictions) has been mitigated by direct agreements in respect of the relevant project documents.

A floating charge covering all present and future assets of a company is not possible in Norway. The only types of floating charges that can legally be granted are those listed in 2.1 Assets Available as Collateral to Lenders as “floating charges”; otherwise, the security asset needs to identifiable.

Only nominal registration costs are associated with the registration/perfection of security with relevant registries.

For floating charges covering the assets listed in 2.1 Assets Available as Collateral to Lenders, identification is not necessary. For assignment of monetary claims (payable in respect of insurance, project contracts, bank accounts, etc), shares and real estate mortgages, identification is necessary.

For monetary claims, this means that the legal relationship in respect of which monetary claims may arise needs to be identified in the security document for an assignment to be legally granted. For shares, the number of shares needs to be identified. This means that if a new contract, new insurance, a new bank account or new shares are entered into, opened or issued, as the case may be, the security provider and the beneficiary will need to commit a new act (by entering into a new security agreement or declaring a pledge – or similar – under an existing security agreement) to make such assets part of the security package.

For real estate mortgages, all real estate has a specified cadastral unit number with Kartverket, and such cadastral unit number needs to be identified when the security is registered/perfected.

A Norwegian company can provide guarantees and security (financial assistance) for the benefit of an entity that has a decisive influence over the Norwegian obligor or its subsidiaries, provided that such assistance serves the financial interests of the group. This practical exception makes upstream security and guarantees common in various corporate and acquisition financings.

However, restrictions apply to acquisition financings and the granting of financial assistance by a Norwegian target company (and any subsidiary) in connection with acquiring shares, or the right to acquire shares, in the Norwegian target or any of its parent companies’ shares. Essentially, the financial exposure under the financial assistance must not exceed the target’s available amount for dividend distribution to its shareholders unless exceptions apply (see the following). Additionally, the financial Assistance must be on commercial terms.

In certain cases, financial assistance from a Norwegian target company may be permissible through a whitewash procedure. Specifically, the amount limitation does not apply in the following circumstances.

• The acquiring company is incorporated in an EEA jurisdiction.
• The acquiring company will be part of the same group as the target post-acquisition.
• A special corporate procedure is followed (often referred to as a “whitewash procedure” in international financing transactions).

This procedure includes:

• an evaluation by the target’s board of directors of the creditworthiness of the recipient of the financial assistance;
• approval by the board;
• a declaration by the board that granting the financial assistance is in the company’s interest, detailing the background and terms;
• approval of the financial assistance by the target’s shareholders’ meeting; and
• registration with the Norwegian Business Registry before the financial assistance can be granted.

Despite these exceptions, a Norwegian entity and its board of directors must always act in the company’s best interest and ensure sufficient corporate benefit. Legal advice should be sought in each case involving financial assistance issues.

Registrable security, such as floating charges and real estate mortgages, can be found through online searches of the relevant registry. For other security, the lenders are advised to check with the relevant contract counterparty, account bank or project company, as the case may be, in addition to checking representations and warranties.

Under Norwegian law, there are no specific formalities required for parties to agree on the release of security. The procedure for formally releasing security interests depends on the type of asset involved, but as a general rule the security may be released by carrying out the same act as that required for perfection. For instance, if the security is perfected by submitting originally signed mortgage or charge forms, the security interest can be released or removed by submitting the original charge form, marked “for deletion” and signed by an authorised representative of the current creditor/beneficiary (or alternatively under a power of attorney), to the appropriate registry, such as Kartverket or Løsøreregisteret.

The enforcement process for security under Norwegian law depends on the type of asset involved.

The Enforcement Act outlines the mandatory provisions for enforcing security interests over assets such as real estate, vessels, aircraft and operating assets. Pre-enforcement agreements that stipulate alternative enforcement procedures, including private repossession or any form of self-help remedy, are prohibited under the Enforcement Act. However, if an enforcement situation arises, the security agent and the security provider may agree on alternative enforcement methods. The primary enforcement procedure is a forced sale conducted through a third party appointed by the court or via public auction.

To enforce in accordance with the Enforcement Act, the claimant must have sufficient legal grounds for enforcement, and perfected (registered) security typically provides such grounds. Additionally, the following conditions must be met.

• The relevant claim must be due, payable and in default.
• The claimant must be entitled to file the enforcement petition, and the claim must be directed at the security provider.
• For perfected security, a written notice must be served on the security provider two weeks before filing the enforcement petition.

However, the provisions of the Enforcement Act do not apply to security established under the Financial Collateral Act over assets that qualify as financial collateral, including security over financial instruments (including shares) and bank deposits. Instead, security interests over financial collateral may be enforced through such enforcement procedures and in such manner as agreed upon by the parties in the relevant security document, which may include forced sale, appropriation and transfer of the relevant asset(s) by the security agent. Further, security established under the Financial Collateral Act may be enforced notwithstanding the opening of reconstruction or bankruptcy proceedings against the security provider. In light of the foregoing, security created over financial collateral is effective security. However, both the enforcement and valuation of financial collateral in connection thereto need to be made on the basis of “commercially reasonable terms”.

A Norwegian company may enter into contracts governed by foreign law, and subject to foreign jurisdiction, with the exception that it will usually not be able to circumvent statutory provisions of Norwegian law by choosing foreign law as the governing law. A Norwegian court will not apply foreign law that is contrary to public policy.

The courts of Norway will enforce final and conclusive judgments of states party to the Lugano Convention of 2007 and/or obtained in any UK jurisdiction (subject to the terms of the convention of 12 June 1961 between the United Kingdom and Norway providing for the reciprocal recognition and enforcement of judgments in civil matters). A judgment of another foreign court or tribunal will be enforceable in Norway if:

• the respective parties thereto have submitted in writing to the jurisdiction of an agreed court or tribunal in respect of the matter in dispute;
• there is no other mandatory venue for such dispute;
• the judgment obtained is final and enforceable, in and pursuant to the laws of the country where it has been passed; and
• the acceptance and enforcement of the judgment is not in conflict with decency or Norwegian mandatory law or public policy.

Lending is a regulated activity in Norway that, with certain exceptions, requires a licence (see 4.1 Restrictions on Foreign Lenders Granting Loans). Violations of the regulations can result in penalties and administrative orders to halt the illegal activity. At the outset, there are no restrictions on a foreign lender’s ability to enforce its rights under a loan or security agreement. Even if a loan is issued in contravention of Norwegian financial regulations, this alone would not render the loan agreement and its associated security agreements void or unenforceable. However, a foreign lender may in practice encounter challenges when seeking to enforce (directly or indirectly) over assets that have been granted by or entered into with a public body (eg, licences granted by the Norwegian government) and/or relating to national security interests, as ownership requirements may apply. Such challenges may in certain scenarios be mitigated by obtaining consent in advance.

The provision of financing (including loans and guarantees) is a regulated activity in Norway, and lenders looking to provide financing to Norwegian companies will, as a starting point and subject to certain exceptions, need to be licensed or passported as either an EEA-based credit institution under Directive 2013/36/EU (CRD IV) or a European long-term investment fund under Regulation (EU) 2015/760 (ELTIF). However, loans provided entirely on a Norwegian borrower’s own initiative, without the relevant lender having marketed or recommended the loan to the borrower prior to the borrower’s decision to initiate the transaction, may constitute reverse solicitation and not trigger licensing requirements in Norway. This is pursuant to the practice and guidelines of the Norwegian regulator. The scope of the reverse solicitation exemption would be subject to a case-by-case analysis.

Otherwise, there are no particular restrictions on foreign lenders as opposed to domestic lenders.

Without prejudice to the licensing requirements for lending activities and practical difficulties related to enforcement and ownership requirements, there are no legal restrictions preventing foreign lenders from receiving security or guarantees.

Norway has not yet implemented a sophisticated foreign investment regime. As of today, only certain activities listed in the Norwegian Security Act are subject to approval from the National Security Authority (Nasjonal Sikkerhetsmyndighet) or other governmental authorities.

There are no particular restrictions on payments abroad or repatriation of capital by foreign investors to be aware of.

It is permissible for a project company to maintain offshore foreign currency accounts.

Except for the registration of registerable security interests with the relevant registry, such as the floating charges and real estate mortgages referred to in 2.1 Assets Available as Collateral to Lenders, there is no legal requirement in Norway that any financing or project agreements are filed to ensure their legality, validity or enforceability.

Exploitation of natural resources for commercial purposes in Norway will as a rule require some form of licence or permit (in most cases, several licences and permits). Among the industries where project financing is of most relevance in Norway, such as offshore wind, hydrogen projects or other forms of large-scale infrastructure projects, a permit will be needed. For establishing grid connection, for example, the developer will need a facility licence under the Energy Act, and for offshore wind developers, a licence will be required under the Offshore Energy Act. The relevant sector-specific laws typically set out the relevant licence requirements, as well as relevant restrictions on the transfer of the licence itself and on direct or indirect transfers of the ownership interest in the relevant licensee. Due to the principles embedded in the EEA agreement, there are (generally speaking) no general restrictions on ownership by foreign entities (save within the hydropower sector), and restrictions on foreign ownership (if any) would typically originate from the Security Act – or general sanctions or similar – rather than from direct sector-specific laws or licence requirements.

Norwegian law does not recognise the concept of a “trust” as understood in common law or English law. However, it does have a well-established agency concept, where one entity can hold a security interest on behalf of itself and others. In secured financings governed by Norwegian law, a security agent is typically appointed by the finance parties to hold the transaction security on their behalf.

Under Norwegian law, the priority of a security interest generally starts from the moment it gains legal protection or perfection, following the principle of “first in time, best in right”. However, there are notable exceptions relating to, for example, statutory liens. Preferential claims can also impact priority, though many of these claims are only relevant during insolvency proceedings.

Subordination is an acknowledged concept in Norwegian law encompassing both contractual and structural subordination. Contractual subordination of claims among different creditor groups is a common practice. However, the term “subordination” has no clear legal implications, and the overall implications of subordination are not always straightforward. As such, the parties need to agree as to what subordination entails on a case-to-case basis. For example, the release mechanism for subordinated claims, often found in standard Loan Market Association (LMA) intercreditor agreements, has not been tested under Norwegian law. It is believed that subordination under Norwegian law at least covers turnover provisions. While this achieves a similar outcome, there is no specific mention of release mechanisms in the preparatory works of Norwegian insolvency legislation.

Norwegian law does not have an equivalent concept to equitable subordination.

For licensed activities, such as on- and offshore wind, there might be a requirement that the project company is organised under the laws of Norway. Otherwise, such organisation is not required, but it might be preferable so that the lenders can obtain the expected security package, including the floating charges over trade receivables, operating assets and/or inventory and financial collateral in the form of share security, which requires that the company is incorporated in Norway.

A company facing serious financial difficulties, either currently or in the foreseeable future, may file for reconstruction (rekonstruksjon) under the Reconstruction Act with the objective of preserving the company’s viability. A reconstruction may also be initiated by such company’s creditors. The Reconstruction Act provides a more flexible legal framework for maintaining business operations in close co-operation with creditors, contrary to bankruptcy proceedings (konkurs). The purpose and objective of the reconstruction negotiations are to prevent bankruptcy in businesses that have the potential to be profitable if restructured in a sensible manner. A successful reconstruction can involve either (i) a voluntary agreement or (ii) a compulsory composition. Since voluntary agreements are usually attempted before the initiation of a reconstruction, the debtor almost always seeks to establish a compulsory composition.

Reconstruction negotiations will be initiated if either the debtor or a creditor has submitted a petition that meets the requirements of Section 3 of the Reconstruction Act, and the court determines that (i) it has been demonstrated that the debtor currently has or will likely encounter severe financial difficulties in the foreseeable future, (ii) there is a likelihood of successful reconstruction and (iii) the debtor has not opposed the reconstruction negotiations (if it is a creditor who has made the petition).

Under Norwegian law, separate reconstruction proceedings must be carried out for each entity within a group. There is no practice or developed system for consolidated reconstruction proceedings.

Debt negotiations can be conducted by the debtor without court involvement. Secured creditors are not affected by these negotiations unless they have explicitly agreed not to enforce or take ownership of the collateral. Court-administered debt negotiation proceedings can only be initiated by a willing debtor, who must demonstrate an inability to meet payment obligations as they become due and show that a composition with creditors is not unlikely.

The rights of a secured creditor must be upheld in both individual and collective enforcement actions. However, during bankruptcy proceedings, the secured creditor’s participation in the collective process is typically limited, as these proceedings are managed by a court-appointed liquidator. Generally, an automatic stay of up to six months is imposed, preventing the enforcement of security on an individual basis during this period.

Despite this general rule, there are notable exceptions. For instance, security interests granted under the Financial Collateral Act are exempt from the automatic stay and can be enforced without waiting for the stay period to lapse. This means that secured creditors holding such financial collateral can proceed with enforcement actions immediately, bypassing the restrictions that typically apply during bankruptcy proceedings.

It is important to note that the exact procedures and limitations can vary based on the specific circumstances and the type of security interest involved. Legal advice should be sought to navigate the complexities of enforcement rights and bankruptcy proceedings under Norwegian law.

The rules for payment of dividends to (unsecured) creditors in an insolvency are complex and follow from mandatory provisions of law. Generally, the waterfall can be described as follows:

• costs incurred as a result of the bankruptcy or by the bankruptcy estate during the insolvency proceedings;
• various salary claims incurred prior to the opening of bankruptcy;
• taxes, VAT, etc;
• other unsecured creditors; and
• subordinated claims.

Secured creditors are allowed to claim as unsecured creditors for the part of their initially secured claim that was not covered by enforcement of the security.

Under Norwegian law, there is a clear distinction between secured and unsecured creditors. Secured creditors typically gain access to their secured assets from the bankruptcy estate manager relatively quickly during the bankruptcy process. If the value of the secured assets has been maintained, secured creditors have a good chance of recovery, although they should account for some costs associated with realising the security asset.

In contrast, unsecured creditors are paid only after legally preferred creditors have been satisfied, which significantly diminishes their chances of recovery. Typically, unsecured creditors receive only a small fraction of the face value of their claims. Due to this unfavourable position, unsecured creditors often attempt to negotiate with financially distressed borrowers to secure their claims. However, because secured creditors are in a much stronger position during bankruptcy, any transactions where new security is granted for old debt are vulnerable to being invalidated by the bankruptcy estate if they occur within a certain period before the bankruptcy is declared.

Banks, mortgage credit institutions and certain other financial institutions are excluded from bankruptcy proceedings pursuant to the Act on Financial Institutions and Financial Groups (the “Financial Institutions Act”) and related legislation, meaning that debt negotiation or winding-up proceedings pursuant to the Bankruptcy Act may not be initiated against such entities. Instead, those entities will be subject to public administration.

There are no restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by insurance companies in Norway.

Insurance policies over project assets are payable to foreign creditors in Norway.

Norway levies a 15% withholding tax on certain outbound interest payments made from Norwegian debtors to related parties resident in low-tax jurisdictions (namely where the effective taxation is lower than two-thirds of what it would have been had the foreign entity (lender) been resident in Norway). There is a general exemption for lenders that are genuinely established and carry out genuine economic activity within the EEA. There is currently no proposal for withholding taxes being imposed on interest payments made to non-related (third-party) lenders like banks.

Norway is considered a creditor-friendly jurisdiction in terms of costs. The withholding of tax legislation does not apply to ordinary third-party lenders, and the expenses associated with obtaining security in Norway are minimal, being limited to nominal registration fees. Additionally, there are no stamp fees or duties for lenders that are calculated based on the loan amount or the value of the underlying asset.

In principle, there are no limits but a contract may – in exceptional cases – be invalidated or revised by a competent court if it is deemed to have unreasonable terms.

Typically, large-scale infrastructure projects in Norway are governed by Norwegian law and based on Norwegian contracting traditions.

In relation to the new offshore wind projects, the Norwegian ministry responsible for granting offshore wind licences is considering imposing a condition that the licensed offshore wind activities must be governed by Norwegian law and be in line with Norwegian contract tradition. As of the date of submitting this questionnaire, the Ministry’s position on this is not yet clarified.

The facility agreements for project financings in Norway are generally governed by either Norwegian or English law.

For offshore wind, refer to the comments in 9.1 Project Agreements. There is no direct suggestion that such requirement of Norwegian law and Norwegian contract tradition would extend to the financing of the relevant project, but the authors cannot exclude the possibility that the government will take into account the governing law of the proposed financings.

Where the assignor/mortgagor is a Norwegian entity, one should look to Norwegian law to determine whether the security is valid and whether the relevant perfection steps have been taken.