Banking & Finance 2023 Comparisons

Recent Economic Cycles

The recent economic cycles have affected the loan market in Sweden to a large extent. As the Swedish economy has been pushed into an ongoing recession since 2022, both banks and other lenders have taken a more careful approach towards borrowers in general. The high-yield bond market, as well as the leverage loan market, have slowed down due to increasing inflation, the Ukraine war and economic volatility. Many borrowers struggle to meet their financial covenants, which has resulted in work outs and restructurings. Leveraged borrowers tend to seek alternative financing sources when refinancing in light of the more careful approach from lenders. Also, an even weaker Swedish currency (SEK) tends to affect borrowers relying on import, but may in turn benefit borrowers exporting products and services.

Regulatory Environment

As regards the regulatory environment in Sweden, there has been no substantial changes in the legislation regarding credit institutions and similar during the last few years.

It should however be noted that Regulation (EU) 2020/1503 of the European parliament and the council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 requires crowdfunding providers to be licensed on 10 November 2023 at the latest. Crowdfunding was previously regulated under other Swedish legislation, and the crowdfunding regulation has brought a stricter regulatory environment for such actors and aims to strengthen investor protection. In a time where many borrowers need to turn to alternative financing sources, such investor protection legislation is much needed.

The Swedish Financial Supervisory Authority (SFSA) has communicated that its focus areas during 2023 are:

• continued consumer protection in light of (i) consumer credit institutions offering vulnerable consumers emergency loans and (ii) an increasing number of investments schemes;
• resilience to cyber-attacks and similar in the banking and insurance sector given the importance for the financial system of these sectors;
• greenwashing in the financial sector;
• compliance with anti-money laundering and counter terrorist financing rules in respect of payment service providers; and
• compliance with sanctions.

The Ukraine war has, as one of many factors, affected the Swedish economy and by extension also the loan market in Sweden. As commodities are unavailable, transports are hindered, the number of sanctions imposed on Russia and Belarus have increased, and other similar impacts, the prices for such commodities rise to levels that many companies and citizens cannot afford. As a result, both banks and other lenders have taken a more careful approach towards borrowers that are affected by such price fluctuations and that may default. As a result, high-risk projects tend to have difficulties raising loan financing.

After many years of covenant-light loan financings with low interest rates and borrower-friendly terms and conditions, lenders now apply stricter covenants and higher pricing of loans.

Further, and as previously mentioned, as the Swedish economy has been pushed into recession, both banks and other lenders have taken a more careful approach towards borrowers in general.

Sweden, with its many fintech starts-ups and real estate companies, has over the past years been an attractive market for investors. As the Swedish economy has been pushed into recession, both banks and other lenders have taken a more careful approach towards borrowers in general. The Swedish bond market generally offers borrowers less strict and more flexible covenants compared to traditional bank loan financing. Given uncertainties on the financial markets since the Ukraine war, issuers tend to raise smaller-sized debt on the bond market. The high-yield market has weakened due to economic volatility which, in turn, has forced borrowers into seeking alternative sources of financing.

Flexibility to reallocate amounts (structural flexibility) between different tranches in multi-tranche facility deals have been used more frequently to facilitate syndication processes.

For some years, alternative credit providers have offered borrowers an alternative to traditional bank loan financing and bond financing. Such alternative credit providers may be direct lenders, crowdfunding and peer-to-peer lenders. Alternative credit providers may offer borrowers faster funding and more flexible terms and conditions than on the traditional loan market.

The portion of loans provided by alternative lenders on the Swedish market continues to increase. Credit funds, direct lenders and peer-to-peer lenders offer alternative financing, particularly for small and medium-sized companies, to traditional bank loan financing and bond financing. The Swedish fintech sector has for some years grown significantly, resulting in new players offering more flexible financing. Other direct lenders, not least institutional investors, also offer an alternative to traditional bank loans for borrowers on the corporate market.

The sustainability trend on the Swedish loan market continues to increase, resulting in more corporate borrowers entering into sustainability linked loans with traditional banks. Key performance indicators in sustainability linked loans continue to further develop market standards.

In addition to that, the boom of green projects, in particular onshore wind power projects, raising green loans on the Swedish market has, compared to many other industries, continued its growth despite more volatile world economics.

Providing loan financing to Swedish companies is not itself subject to a licence. However, such services may generally fall within the scope of the Swedish Currency Exchange and Other Financial Activities Act, provided that such services are provided on a professional basis and are deemed to be the main part (taking into account certain other regulated activities) of the business of that entity. If so, the provision of such loan financing generally requires a registration with the SFSA.

Generally, banking business and financing business are heavily regulated in Sweden and fall within the scope of the Swedish Banking and Financing Business Act. In short, banking services include (i) processing payments via general payment systems and (ii) receiving funds that are repayable to the creditor within 30 days of notice. Generally, financing businesses include (i) accepting repayable funds from the public and (ii) granting loans, providing guarantees or conducting certain leasing (acquiring claims) activities.

There are generally only a few alternatives for entities to provide financing to a Swedish company, provided that such services are deemed to fall within the scope of licensable activity (ie, a registration pursuant to the Swedish Currency Exchange and Other Financial Activities Act is not sufficient).

Foreign Credit Institutions

Foreign credit institutions holding a licence in another EEA country may submit a passporting notification to the competent authority in that entity’s home member state, to provide its regulated banking services to another EEA country (including Sweden). The competent authority will review the notification and notify the SFSA that such entity will provide services in Sweden. Such entity will thereafter be permitted to provide its regulated banking services on a cross-border basis into Sweden from its home member state.

Foreign credit institutions holding a licence in another EEA country may, instead of providing its banking services on a cross-border basis, submit a notification to the competent authority in its home member state to establish a branch or representation office in Sweden. Such notification shall, among others, include a business plan.

Non-authorised Entities and Third-Country Credit Institutions

Entities not holding a credit institution licence in another EEA country need to apply for a licence with the SFSA in order to conduct banking or financing business in Sweden. The details of the application requirements will be different depending on the relevant licence and the extent of such licence. However, the following items are typically included:

• detailed business plan describing inter alia the business, the organisation, the services, any outsourcing arrangements, ownership structure, etc;
• policies regarding inter alia credits, internal governance, risk management, remuneration, business continuity, etc;
• financial projections for the next three years;
• ownership and owner executive assessments; and
• management assessments.

Credit institutions based outside the EEA may, in order to provide their banking or financing business in Sweden, submit an application with the SFSA to establish a branch in Sweden.

Foreign lenders are generally not restricted from providing loans to Swedish companies. However, foreign lenders providing loans in Sweden may require a registration with, or licence to be granted by, the SFSA (see 2.1 Providing Financing to a Company).

Further, some countries are considered as “high-risk third countries” from an AML perspective, which can impede or even forbid such business to be operated. The same applies to foreign lenders that fall within the scope of sanctions. 

Foreign lenders are not restricted or impeded from receiving security or guarantees.

Foreign currency exchange controls are not imposed in Sweden and there are generally no restrictions in this regard on commercial transactions.

It may be noted that there is a reporting requirement in respect of certain financial institutions covering certain cross-border payments. Such reporting should be made to the Central Bank of Sweden (Riksbanken).

There are no general restrictions under Swedish law on the borrower’s use of proceeds from loans or debt securities, but there are specific restrictions in relation to, for example, financial assistance (see 5.3 Downstream, Upstream and Cross-Stream Guarantees) and transactions not permitted by AML rules and sanction rules.

Further, it should be noted that the use of proceeds is typically regulated in the loan agreement between the lender and the borrower.

Agents

The concept of agents is recognised in Sweden and is commonly used in structured financing transactions.

Trusts

The concept of trusts is not recognised in Sweden.

Lenders may generally transfer loans, together with the existing security package, to a third party. Strong borrowers, most commonly investment-grade companies or borrowers backed by private equity sponsors, may successfully negotiate to limit loan transfers to a certain group of pre-approved lenders or financial market participants regularly engaged in lending business on the Swedish market.

The relevant security package should be transferred in connection with the loan transfer since Swedish law requires that there is an existing or future debt in order for the security interest in relation thereto to be valid. Due perfection of the security package should be taken into consideration in connection with a transfer of the loan and the security package to a new lender.

Swedish law does not restrict debt buy-backs, but Swedish law-governed facilities agreements generally contain standard LMA-based restrictions in relation to this. Debt buy-backs are not common on the Swedish loan market given that most loan deals on the Swedish market are syndicated loans, with low activity on the secondary market.

Before an offeror makes a tender offer (public takeover bid) in respect of a Swedish company whose shares are listed on a Swedish stock exchange, the offeror must have secured funding to complete its tender offer. A tender offer should, among others, include a description of the financing arrangement, meaning that the offeror needs to describe any third-party financing (including conditions for such financing arrangement).

Certain fund provisions are not only used in the context of public acquisition finance – the use of these provisions is quite common in relation to private equity transactions.

The increasing number of sanctions imposed on Russia, Belarus and entities established and/or connected thereto, have caused changes in legal documentation in relation to borrowers with some kind of Russian or Belarusian connection. Lenders tend to be even stricter and pay more attention to sanction provisions as a result of the Ukraine war.

Usury is considered a criminal offence under the Swedish Criminal Act (Brottsbalken).

Where a person exploits someone else (eg, due to distress, lack of understanding, or similar) when entering into an agreement or some other action with legal consequences with the purpose of benefiting therefrom, and the benefit is clearly disproportionate to the consideration, or for which no consideration is to be paid, it is considered usury. 

Further, where a person who, when providing credit in business activities or other activities conducted habitually or otherwise on a large scale, obtains interest or some other financial benefit that is clearly disproportionate to the consideration, it is also considered usury.

There are in respect of commercial transactions no clear limits on what interest rates would be considered usury. Such limits are therefore determined on a case-by-case basis.

It may also be noted that an interest rate provision can be modified or set aside if considered to be unfair or unreasonable pursuant to the Swedish Contracts Act. However, the threshold for a contractual provision to be considered unfair or unreasonable in a commercial relationship is rather high.

Further, there is an interest rate cap, calculated as the reference rate plus 40%, in respect of certain high-cost credits provided to consumers pursuant to the Swedish Consumer Credit Act. Such high-cost credits (excluding certain credit purchases and housing loans) generally relate to consumer consumption.

There is no specific Swedish regulation regarding disclosure of certain financial contracts.

Payments of principal or interest to foreign lenders are generally not subject to withholding tax under Swedish law, provided that such lenders are entities not organised under Swedish law and that do not conduct business activities from a Swedish permanent establishment.

There are no other specific major restrictions, consents required to approve, or significant costs associated with granting security or guarantees under Swedish law. However, the issuance of new business mortgage certificates and property mortgage certificates will require a stamp duty to be paid in connection with the issuance. Such stamp duty is a one-time cost and such certificates may, after issuance, be reused without additional stamp duty to be paid.

Business Mortgage Certificates

The stamp duty for the issuance of a new business mortgage certificate currently amounts to 1% of the face value of the business mortgage certificate.

Property Mortgage Certificates

The stamp duty for the issuance of a new property mortgage certificate currently amounts to 2% of the face value of the business mortgage certificate.

Other Assets

Security over ships and aircraft are also subject to stamp duty.

Fees

Minor application fees will be payable in addition to the payments of stamp duty as described above.

Foreign lenders, being entities not organised under Swedish law and that do not conduct business activities from a Swedish permanent establishment, are generally not subject to Swedish income tax in respect of payments of principal amounts or interest of loans. However, lenders based in Sweden may be subject to taxation in respect of income that derive from certain capital assets, such as interest. Foreign lenders, including non-money centre bank lenders, should therefore carefully consider their operations and potential permanent establishment in Sweden to have visibility on their situation from a Swedish law tax perspective.

Under Swedish law, a security interest can generally be created over any asset. The most common types of assets that security is created over are shares, real property, cash deposited in bank accounts, receivables and business mortgages.

A binding agreement between the pledgor and the pledgee is required under Swedish law to create a security interest. Such security agreement may be made in oral form or, as is the case in almost all commercial transactions, written form.

Due perfection of the most commonly used assets that security is created over are made as follows.

Shares

Security can be taken over shares in a limited liability company and such security interest is commonly created by way of a pledge. Perfection of the security interest created over the shares, represented by physical share certificates issued by that company, requires that the physical share certificates representing the pledged shares are handed over to the pledgee.

In relation to companies whose shares are electronically registered with the Central Securities Depository, perfection of the security interest is made by way of:

• registration if the shares are held in the owner’s name; and
• notice to the relevant custodian if the shares are being held by a custodian. 

Real Property

Security over real property is created by way of pledging mortgage certificates representing a certain sum and a certain ranking in relation to the real property.

Perfection of a pledge of physical mortgage certificates is made by way of handing over the physical mortgage certificates to the pledgee. In relation to a pledge over electronic mortgage certificates, perfection is made by way of registration with the Swedish Land Registration Authority (Lantmäteriet)

Business Mortgage (Floating Charge)

Security can be taken over business mortgages (floating charges) covering certain moveable property, such as inventory, claims and similar, of the security provider. A business mortgage does not include cash, proceeds on bank accounts, financial instruments and similar. Business mortgage certificates will represent a certain sum and ranking in relation to business mortgages in respect of a company.

Security over physical business mortgages is perfected by way of handing over the physical business mortgage certificates to the pledgee. Security over electronic business mortgage certificates is perfected by way of registration with the Swedish Companies Registration Office (Bolagsverket).

Receivables

Due perfection of a pledge of receivables is created by way of notice to the debtor and the pledgor being restricted from receiving payments of such contractual claims.

In respect of so-called negotiable promissory notes (löpande skuldebrev), being bearer instruments of the value, due perfection requires that such promissory notes are handed over to the pledgee.

Cash in Bank Accounts

A pledge over cash deposited in a bank account is perfected by way of notice to the account bank and the pledgor being restricted from disposing of the funds in the bank account.

General Security Concepts

There is no general security interest recognised under Swedish law which covers all assets of the security grantor. However, security can be taken over business mortgages (floating charges), represented by business mortgage certificates, covering certain moveable property, such as inventory, claims and similar, of the security provider. A business mortgage does not include cash, proceeds in bank accounts, shares or other financial instruments.

There is no restriction on including different types of assets over which security is created under one general security agreement, but specific perfection requirements for each type of asset should then be taken into account. However, there will typically be different security agreements covering different types of assets subject to security in Swedish loan financings.

Swedish limited liability companies (aktiebolag) may not grant monetary loans, security or a guarantee for monetary loans to shareholders, board members, managing directors, certain relatives and spouses/co-habitants (sambo) to any such person, or persons who, alone or together with someone, has a controlling influence in the company or another company within the same group.

A “group” means any other group of undertakings of corresponding nature in which the parent company is:

• a Swedish legal entity which is obliged to maintain accounts pursuant to the Swedish Accounting Act (bokföringslagen);
• a corresponding foreign legal entity domiciled within the EEA; or
• a municipality, county council or association of local authorities.

However, there are exemptions in cases where the borrower is a municipality or similar, or if the loan has been borrowed by the Swedish National Debt Office pursuant to Chapter 5 of the Swedish Budget Act (budgetlagen). Further, there is an exemption where the borrower is a company within the same group as the lending company, or where the loan is intended exclusively for the borrower’s business operations and the company provides the loan for purely commercial reasons.

There is also an exemption regarding loans and granting of security to a shareholder or connected persons where the total shareholding in the company held by the borrower and connected persons does not amount to 1% of the share capital.

Advances, loans or security may, however never be provided where full coverage for the restricted share capital is thereafter not available. When calculating whether full coverage for the restricted share capital is available, advances and loans pursuant to the first paragraph shall be treated as receivables of no value, and security pursuant to the first paragraph shall be treated as a liability of the company.

Further, transactions where a limited liability company provides a loan or grants a security or guarantee may be limited or even void if the transaction reduces the limited liability company’s net worth and such transaction is not deemed to have corporate benefit for that limited liability company. These transactions are referred to as value transfers under Swedish law. As regards downstream guarantees, these are typically considered to have corporate benefit if the subsidiary is wholly owned by the parent company and the subsidiary is not insolvent. In relation to upstream or cross-stream guarantees, the limited liability company guaranteeing obligations of another legal entity must carefully consider if the transaction has sufficient corporate benefit, which in many cases may be that the subsidiary accesses more favourable financing terms and conditions on a group basis.

A Swedish limited liability company (aktiebolag) is generally prohibited from granting an advance, providing loans or providing security for loans in order for the debtor or any natural or legal person connected thereto (as referred to in Chapter 21, Section 1 in the Swedish Companies Act) to acquire shares in the company or any parent company in the same group. This financial assistance prohibition does not generally cover refinancings or security take-ups involving the target company, and which are made some time (market standard is somewhere between approximately 30 and 90 days) after the acquisition of the target company has been completed.

There are no other specific major general restrictions, consents required to approve, or significant costs associated with granting security or guarantees under Swedish law. However, the issuance of new business mortgage certificates and property mortgage certificates will require a stamp duty to be paid in connection with the issuance. Such stamp duty is a one-time cost, and such certificates may be reused after issuance without additional stamp duty to be paid.

Business Mortgage Certificates

The stamp duty for the issuance of a new business mortgage certificate currently amounts to 1% of the face value of the business mortgage certificate.

Property Mortgage Certificates

The stamp duty for the issuance of a new property mortgage certificate currently amounts to 2% of the face value of the business mortgage certificate.

Release mechanisms are usually governed by the relevant security agreement in addition to a general release clause typically included in an intercreditor agreement. Intercreditor agreements governing the release of assets pledged under Swedish law generally give the security agent a discretionary power to release the relevant security, since automatic release clauses may negatively affect the perfection of the relevant security interest.

Release of Security Over Monetary Claims

Release clauses in relation to security over monetary claims, such as insurance proceeds, claims under material contracts and similar, usually require the security agent on behalf of the lenders to notify the relevant debtor of the security release.

Release of Security Being Held in the Possession of the Pledgee

Release clauses in relation to pledged assets that have been perfected by way of coming into the possession of the pledgee, usually require that the pledgee returns the relevant asset to the pledgor. This applies to, for instance, non-electronic business mortgage certificates, non-electronic property mortgage certificates and share certificates.

Release of Security Registered in a Certain Register

Release clauses in relation to security that has been registered in a certain register usually require a deregistration of such security interest to be made in the relevant register. This applies to, for instance, electronic business mortgage certificates, electronic property mortgage certificates as well as shares and other securities registered with a securities depositary.

Priority of Competing Security Interests

Parties involved in a Swedish loan financing do generally deal with competing security interests by way of entering into a subordination agreement or an intercreditor agreement, in which a contractual priority between different lenders or group of lenders may be created. Such agreements are generally based on LMA standards.

A duly perfected security interest in relation to a certain asset will generally have priority ahead of other claims such as third-party creditors or a bankruptcy receiver in the pledgor’s bankruptcy. However, there are claw-back periods to be considered in this regard; see 7.1 Impact of Insolvency Processes.

Reference is made to 7.2 Waterfall of Payments for an overview of the priority between creditors in the event of a bankruptcy.

Other Third-Party Security Interests

Third-party security interests can, in some cases, be created by operation of law.

A retention of title of certain goods and assets can result in a seller of such goods or assets having better priority than a secured lender. A valid retention of title must, among others, be created prior to the relevant goods or assets being transferred. Also, if the buyer of the goods or assets is permitted to consume or sell the goods or assets, this may negatively affect the validity of the retention of title.

Certain moveable property remaining in the possession of the seller may have priority ahead of other creditors if the sale has been duly registered with the Swedish Enforcement Authority (Kronofogdemyndigheten). 

Enforcement of security is typically made as an auction sale. Under Swedish law, a pledgee has a fiduciary duty to take into account the interest of the pledgor when enforcing the security. This means that the pledgee should seek to realise a fair market value for the asset being realised, given the circumstances at hand.

Further, a security may only be enforced to the extent it is covered by the debt secured by the security, and any excess cash from an enforcement sale should be paid to the pledgor.

Security agreements generally regulate the circumstances under which security may be enforced. If the parties have not agreed on how enforcement should be carried out, the pledgor may seek enforcement assistance with the Swedish Enforcement Authority.

Enforcement of property mortgage certificates and business mortgage certificates are limited to be made through a public sale process at the Swedish Enforcement Authority.

In addition, there is a forfeiture prohibition under Swedish law restricting a pledgee from assuming ownership of the pledged asset if such acquisition is not made in fair competition of other potential acquirers on the market, which further strengthens the reasons to arrange an auction sale of the relevant asset.

Swedish courts generally recognise the choice of foreign law to govern contracts, subject to conflicts with public policy (ordre public) and foreign law contracts may be enforced in Sweden provided that Sweden has jurisdiction over them. Waivers of immunity are generally legally binding and enforceable under Swedish law.

Judgments given by a foreign court may be enforceable in Sweden under the Haag convention, Brussels I convention, or Lugano convention.

Arbitral Awards

Sweden is a party to the 1958 New York Convention, meaning that all arbitral awards issued by a connected party thereunder are enforceable in Sweden.

There are generally no restrictions in relation to a foreign lender’s ability to enforce its rights under a Swedish law-governed loan agreement or Swedish law-governed security agreement.

Swedish entities that have been declared bankrupt will, by operation of law, have their assets managed by an appointed bankruptcy receiver which will manage the insolvency process and ensure that the total assets of the bankruptcy estate, after certain deductions, are being distributed among the relevant creditors in a certain order. Perfected security may still be enforced by way of auction sale in such scenario even though an insolvency process may delay the sale process of certain assets. 

It may be noted that there are different types of claw-back periods under Swedish law, which means that certain transactions may be recovered by a bankruptcy receiver to the bankruptcy estate if such transaction has been made within the relevant claw-back period. For example, there is a three-month long claw-back period regarding new security granted provided in respect of existing debt, which generally affects security assets with delayed perfection.

Under Swedish law, there are several tiers of priority between creditors in the event of insolvency of a borrower:

• special priority right, being claims that are connected to a particular collateral (such as security over real property or other pledge);
• general priority right, for instance costs that are connected to initiate the insolvency proceeding;
• unprioritised claims, being everything else. Any assets remaining after creditors under the first two bullet points above have been paid should be divided between the creditors in this category; and
• subordinated claims.

The priority order of special priority rights is listed in Section 3a–7 in the Swedish Priority Rights Act (förmånsrättslag). Before any creditors are paid in the above priority order, certain costs related to the operations of the bankruptcy estate as well as fees to the bankruptcy receiver should generally be paid. Any remaining amount after repayment of debt has been made in full should be distributed among the shareholders.

The concept of secondary pledge is available under Swedish law, where two creditors may agree that a secondary pledge is made in an asset, where the secondary pledgee has secondary right to the pledge.

Parties involved in a Swedish loan financing do generally deal with competing security interests by way of entering into a subordination agreement or an intercreditor agreement, in which a contractual priority between different lenders or group of lenders may be created. Such agreements are generally based on LMA standards.

If a company itself submits a bankruptcy filing to the relevant court, the court usually dispatches its decision on the very same day. If a creditor files for bankruptcy, the court will generally take up to two weeks or more due to negotiations between the parties involved.

The insolvency process itself can vary in length, from a few weeks to many years. The bankruptcy receivers are obliged by law to ensure that all assets are managed in the best way possible and that the priority order between different creditors is followed.

Reorganisation of Companies

Companies with temporary financial problems may apply for a company reorganisation (företagsrekonstruktion) in order to achieve a more viable financial situation by way of not allowing enforcement actions taken by creditors during the reorganisation period. Part of a reorganisation is also generally to make compositions with the creditors by way of reaching an agreement to reduce the company’s debts to some extent.

As of 1 August 2022, a new Swedish Reorganisation Act came into force implementing the EU Directive on Restructuring and Insolvency. There are some key aspects introduced in the new Act. Courts should generally apply a stricter approach when assessing whether a reorganisation is appropriate for the relevant company, this is referred to as the so-called viability test. Also, a legally binding reorganisation plan may be established, which should, among others, set out the parties involved, actions to be taken during the reorganisation as well as timing aspects thereof. Further, conversion of debt to equity (by way of debt-to-equity swaps) can be made part of the binding reorganisation plan. Another new element is that cross-group cram-downs may not only include unsecured creditors, as was the case previously, but also secured creditors. The new Swedish Reorganisation Act substantially amends the measures that may be taken in connection with a company reorganisation.

If the borrower, security provider, or guarantor were to become insolvent, the lenders would face the risk of not receiving part of or the entire loan amount (including interest, both accrued and future). Lenders may also need to take into account claw-back periods of security granted and to ensure that any security granted to the lender is duly perfected.

For some years, there has been a high activity of onshore wind power projects in Sweden due to an increased level of transition to renewable energy, which have been fuelled by political promotion of such energy sources. These projects are mostly located in non-residential areas in the northern, and to some extent in the southern, part of Sweden. Large wind power parks have been built and financed by project financing during the establishment phase and then sold to, for instance, large institutional investors. These project financings are often complex and generally attract interest from foreign lenders and investors.

Public-private partnership (PPP) transactions are not very common in Sweden. Two high-profile PPP’s in Sweden have nevertheless been the construction of Nya Karolinska, a hospital located in Stockholm, and the construction of Arlanda Airport Express, a railway from the city of Stockholm to Arlanda Airport.

Swedish courts generally recognise the choice of foreign law to govern contracts, subject to conflicts with public policy (ordre public) and foreign law contracts may be enforced in Sweden provided that Sweden has jurisdiction over them. Project documents may therefore be governed by foreign law but it should be noted that certain documents should take local law requirements into account, such as security agreements where Swedish law perfection requirements will affect the perfection of such security. Further, issues that are governed by local legal principles that may not be negotiated are issues that will always be governed by local law, regardless of whether the parties have agreed that the issue will be governed by foreign law. 

English and New York local court judgments are as a main rule not recognised or enforceable in Sweden without a retrial of the merits of the case. However, the foreign judgment may provide strong evidence in the case. Certain English court judgments in civil and commercial matters may be recognised and enforceable in Sweden pursuant to the Hague Convention, which applies to certain international cases with exclusive choice of court.

International arbitration is always available to the parties, where arbitration is possible.

The Swedish Parliament is expected to approve a new law in relation to foreign direct investments (the “FDI Act”), which should enter into force on 1 December 2023. The FDI Act is intended to protect national security interests of Sweden by way of, among others, imposing notification requirements prior to foreign direct investments in Swedish companies conducting certain protective activities being made. Such businesses include, for example, security-sensitive services, certain technology, equipment used in the military sector, raw materials and similar. Foreign direct investments in such companies of at least 10% of the total shares or votes will require a prior notification to, and approval by, the Swedish Inspectorate of Strategic Products (Inspektionen för Strategiska Produkter). Non-compliance with the FDI Act may result in fines of up to SEK100 million. The FDI Act will have significant impact on many transactions and may delay and/or restrict certain foreign direct investments.

As described further in 5.4 Restrictions on the Target, there are financial assistance restrictions under Swedish law which need to be taken into account in relation to Swedish acquisition financings in respect of a target company being a Swedish limited liability company. In short, this means that such target company may not, with a few exemptions, provide loans or grant security for the acquisition of the shares in the target company itself.

Further, corporate benefit issues may also need to be carefully considered when structuring deals so that companies granting security or guarantees are deemed to receive sufficient corporate benefit from the transaction at hand. In many deals, corporate benefit for a group company granting security or guarantees for the benefit of its parent company may result in the whole group receiving financing on terms and conditions not available for a company on a standalone basis.

The main part of the Swedish project finance activity relates to renewable energy projects and more specifically onshore wind power projects. The typical financing source for these projects are bank loans borrowed by a project company, being a special purpose vehicle established for the specific project. Such project company generally enters into the relevant finance agreements, in many cases guaranteed by a parent company. The structure is set up to facilitate a sale of the whole project to a third party at a later stage. Sponsors generally contribute capital to supplement the loan financing. Lenders are most commonly based within the EU and the financings are either bilateral financing arrangements or syndicated deals.

The level of natural resources is high in the northern part of Sweden where many large companies have started high-profile green industrial projects. These business projects are often complex, capital-intensive and may encounter issues with local property owners (in many cases municipalities), local infrastructure and environmental permits.

Environmentally hazardous activity requires an environmental permit pursuant to the Swedish Environmental Code (Miljöbalken). Certain projects may therefore need environmental permits, which should be taken into account in project financings. Most applications for environmental permits are submitted with the local County Administrative Board, while projects, such as mining and industrial projects, having a more significant environmentally hazardous impact should obtain an environmental permit from the relevant Land and Environment Court (Mark- och miljödomstolen). Such processes will generally involve consultation with other parties concerned by the contemplated environmentally hazardous activities, which in many cases may be time consuming.

The Swedish Work Environment Act (Arbetsmiljölagen), supplemented by certain rules issued by the Swedish Work Environment Authority (Arbetsmiljöverket), generally regulates the work environment, and aims to prevent work accidents, ill health and foster a good work environment.