Project Finance 2021

Last Updated November 04, 2021

Norway

Law and Practice

Authors



Advokatfirmaet Simonsen Vogt Wiig is one of the largest law firms in Norway, with offices in the major cities in Norway and in Singapore. The firm's 180 lawyers represent clients within all industries and sectors, across all legal functions and areas of expertise. Simonsen Vogt Wiig has a finance team consisting of six partners and 16 non-partners, representing both lenders and borrowers, working across all sectors. The firm advises its clients with all types of financing, including project finance, syndicated lending, direct lending, leveraged lending, asset lending, refinancing, restructurings and leasing. Simonsen Vogt Wiig has been at the forefront of developments in project financing deals within land-based wind and hydro power and also has experience with cross-border project financing within offshore wind.

The construction of onshore wind power plants has been the main driving force for project finance in Norway during the last decade. However, due, amongst other things, to opposition from the public towards the construction of new plants, Norway has seen a steep decrease in new projects and it is expected that only a limited number of new Norwegian onshore wind projects, and related project financings, will be seen going forward.

Norway has recently opened the "Utsira Nord" and "Sørlige Nordsjø II" offshore areas for licence applications, and a number of industry heavyweights, including Equinor, Hydro, Statkraft, Aker, Wilhelmsen, Ørsted, Eni and RWE, have already signalled their intentions to participate. It is, however, not expected that true project financings within offshore wind in Norway will be seen for a while.

If different types of financing relating to public-private partnership and construction of real estate (including construction of data processing centres), vessels, fibre broadband and similar are excluded, there are consequently a limited number of ongoing true project financings in Norway currently.

The current focus on green and sustainable financing, including without limitation the Norwegian implementation of the EU Taxonomy Regulation, will, however, mark a shift in this regard. This is likely to benefit a number of the new industry sectors which are deemed future candidates for project financing in the Norwegian market. It is therefore expected that in the coming years an increase of various types of project financings relating to areas such as carbon capture, battery cell production facilities, hydrogen, solar and the development of zero emission vessels will be seen.

Large project financings in Norway are dominated by infrastructure funds and other large international sponsors.

Due to a particular Norwegian law licence requirement for lending activities (see 4.1 Restrictions on Foreign Lenders Granting Loans), it is predominantly banks and similar licensed financial institutions that act as lenders under Norwegian law-governed project financings. This includes both Nordic banks, such as DNB Bank and Skandinaviska Enskilda Banken, and various foreign banks, such as Dekabank, Crédit Agricole and Rabobank.

The use of public-private partnerships (PPP) as a method of financing is not widespread in Norway compared to other European countries.

Since it was introduced, PPP has been used for certain road projects, as well as construction of hospitals, schools and similar construction projects. In these projects, the public entity party usually orders a service and sets out specific functional requirements, standards, qualities, etc, of the service that is to be delivered. On the basis of this framework, a contract is entered into with a private contractor for the implementation and operation of the projects. PPPs usually have a duration of 20–30 years.

PPPs are not specifically regulated under Norwegian law, but are partly regulated under generally applicable statutory legislation, such as the Public Procurement Act. General statutory legislation, such as the Working Environment Act and the Pollution Control Act, are also applicable. Other legislation is applicable depending on the sector in question, such as the Planning and Building Act for construction/real estate, the Petroleum Activities Act for oil and gas and the Water Resources Act for hydropower.

Apart from the Norwegian Public Road Administration's standard for road developments applied in the PPP road projects, no standard Norwegian law PPP contracts have been developed yet. Thus, each new PPP contract is subject to considerable negotiation.

The use of PPPs is controversial in Norway. In particular, the unions have been sceptical of PPPs. Following the election in 2021, Norway will most likely get a new government with a negative view on PPPs, and it is, therefore, not expected that there will be many new PPPs at state level in the years ahead.

Large project financings in Norway are dominated by infrastructure funds and other large international sponsors and lenders and Norwegian deals are consequently structured in a similar way as in other European jurisdictions.

Project financings are usually made in favour of a special-purpose vehicle (see 5.5 Local Law Requirements) on a non-recourse basis, subject to a satisfactory debt-to-equity ratio, with debt service being based on cash-flow generated in the project company. Due to a particular Norwegian law licence requirement for lending activities, see 4.1 Restrictions on Foreign Lenders Granting Loans, there will usually not be any junior debt other than shareholders' loans.

It is worth mentioning that Norwegian law does generally not allow assignments of contracts (see 2.5 Restrictions on the Grant of Security or Guarantees) and direct agreements with the project company's counterparties are therefore an important part of the lenders' security package. However, as the concept of direct agreements under project financings is relatively new under Norwegian law, they should be carefully structured to ensure the validity of the lenders' rights towards a bankruptcy estate and other creditors.

Green technology and sustainability are currently hot topics, which are expected to play a great part going forward across all sectors. It is expected that this green wave will lead to increased activity in renewable energy, including in relation to offshore wind, solar wind, hydrogen and battery-cell production facilities.

The right to establish security over assets and rights under Norwegian law is limited to those explicitly provided for by the Mortgages Act or other statutory law.

Security is generally created by an agreement between the security-provider and the security-holder.

Real Property

Security can be created over a security-provider's rights to real property (land) which have been registered with the Norwegian Land Registry. The security may relate to the ownership rights, lease rights, or any other registered right of use in relation to that land, such as waterfall rights and mining rights. The security is perfected by registering a statutory form with the Norwegian Land Registry.

Registered Assets and Rights

Assets and rights which have been registered in a public register, such as vessels, aircraft, patents and patent applications, power lines, mineral production licences, aquaculture licences or petroleum licences, can be subject to security. Perfection is achieved by registration of a statutory form with the applicable registry: the Norwegian Ship Registry (Ordinary or International), the Norwegian Shipbuilding Registry, the Aviation Register, the Norwegian Industrial Property Office, the Power Lines Register, the Register of Petroleum Licences or the Norwegian Aquaculture Register.

Unregistered Movable Properties

Unregistered movable properties (assets) can be pledged as security. Perfection is achieved by transfer of possession from the owner to the mortgagee, or to a third party which will keep the asset in custody on the pledgor's behalf. As this usually is impractical for the security-provider, such security is rarely used for project financings.

Shares and Financial Instruments

Share certificates have not been used in Norway for many years. Shares in private limited-liability companies are usually registered in the company's shareholders' register, which is kept by the company itself. Such shares may be pledged and perfection is achieved by giving notice of the pledge to the company, whereupon the company notes the pledge in the shareholders' registry. In relation thereto, it is important that the company's articles of association explicitly state that the shares are freely transferable, ie, that a transfer of shares is not subject to the company's consent and that the other shareholders do not have a right of first refusal.

Shares in public limited companies and certain private limited companies are registered with the Norwegian Central Securities Depository (VPS). Such shares may be pledged and perfected by registration against the shares in the relevant account with the VPS.

Inventory, Machinery and Plant, Etc

Floating charges may be created and registered over certain specific rights and assets, such as a company's present and future:

  • inventory (such as raw material, unfinished and completed products, fuel, etc);
  • machinery and plant (such as machines, tools, patents, trade marks, etc);
  • motorised vehicles, construction machines and railway materials;
  • farming/fishing tools, etc, relating to agriculture.

These floating charges are perfected by registration against the relevant company in the Norwegian Mortgaged Movable Property Register (No: Løsøreregisteret).

Monetary Claims

Present and future monetary claims against a named debtor under an identified legal relationship may be assigned as security. This includes present and future monetary claims relating to a contract, an intra-group loan agreement, an insurance policy, a bank account/deposit, or similar. The security is perfected by notification to the relevant debtor.

In addition, a floating charge may be created over a company's present and future trade receivables against its customers. The charge is made on a standard form and is perfected by registration with the Norwegian Mortgaged Movable Property Register (No: Løsøreregisteret). Thus, it is not required to notify each debtor of the charge in order to have a perfected security.

A general "floating charge" over all (unspecified) assets and rights that a company has or will obtain is invalid and unenforceable under Norwegian law. However, it is possible to create floating charges over certain specific assets (see 2.5 Restrictions on the Grant of Security or Guarantees).

For registerable security, a one-time minor registration fee is payable for each mortgage/charge. The exact amount varies between the registries (as of 2021):

  • floating charges which can be registered against the company in the Norwegian Mortgaged Movable Property Register (No: Løsøreregisteret), comes with a standard fee of NOK1,516;
  • a registration fee of NOK580 is payable for each mortgage which is registered with the Norwegian Land Registry. Should a property mortgage need to be enforced, a transfer tax of 2.5% of the value of the property is payable;
  • a registration fee of NOK2,613 is payable for each vessel mortgage which is registered with the Norwegian Ship Registry;
  • for aircraft mortgages, the fee payable varies with the secured amount, currently between NOK3,060 and NOK17,630;
  • a registration fee of NOK500 (less for subsequent mortgages) is payable for registration of mortgages over patents or patent applications with the Patent Register.

The collateral will generally need to be clearly identified at the time that the relevant security was established to create a valid security interest.

This is, however, not applicable for floating charges, as described in 2.1. Assets Available as Collateral to Lenders. Moreover, any such floating charges will not be effective against a third party acting in good faith who has received security over a claim or an asset covered by that security and has perfected the security as prescribed by law.

There are certain restrictions under Norwegian law in connection with the grant of security or guarantees that one should be aware of the following.

  • With certain exceptions, it is only possible under Norwegian law to assign monetary claims under a contract, and not other contractual rights or the contract as such. To secure the lenders' interest, they usually require share pledges over the shares in the borrower as well as direct agreement (see 1.3 Structuring the Deal). Norwegian company law limits a Norwegian company's right to grant credit and security (including guarantees) for the benefit of a range of parties that are related to the company, eg, its shareholders or a party closely related to a shareholder. Such security may only be granted if the value of that security does not exceed the funds which the company may use for distribution of dividends (free equity) and provided that adequate security has been granted for the claim for repayment or recovery. Certain exceptions will apply, the most important of which is security for the Norwegian parent company's or controlling entity's obligations.
  • Norwegian company law also sets out certain financial assistance restrictions which become applicable if, amongst other situations, a Norwegian company makes funds available, or grants security or guarantees, in connection with a third party's acquisition of shares or a right to acquire shares in the company or its parent company. Such financial assistance is generally only available within the scope of funds available to the company for distribution of dividends or, provided that the acquiror is domiciled in an EEA state and the company and the acquiror will become part of the same company group, if a relatively complicated statutory whitewash procedure has been completed.
  • In addition, certain restrictions and information requirements (including maximum liability amount, notification requirements and enforcement restrictions) will apply to guarantees and security granted by a third party. These are mandatory for guarantees and security granted by consumers in favour of financial institutions, but most provisions may be, and most often are, waived in guarantees and security granted by non-consumers.   

Liens are generally not recorded in any central, or searchable registry. With respect to registerable security, each relevant registry must be checked. Which registry is relevant would depend on the specific assets relevant to the project. The usual registries are listed in 2.1. Assets Available as Collateral to Lenders.

A security interest is typically released by agreement between the parties or by declaration from the mortgagee. 

The procedure for release of security depends on how the relevant security was perfected. If the security was perfected by way of notification to the debtor (typically for monetary claims, insurance claims and bank accounts/deposits) or the company (for share pledges), the security will be released by notification to the same third party.

For security that was perfected by way of registration, the security will be released by discharging that registration. This usually means that the original document must be endorsed for discharge and returned to the relevant registry. Some registries, such as the Norwegian Ship Registry, allow for pre-positioning of the release documentation for release upon further instructions.

Whether the lender is entitled to enforce its collateral is dependent on the terms and conditions of the relevant underlying agreement.

The general enforcement of collateral is regulated by the Enforcement Act. The act applies to both public and private claims. A motion to enforce a claim, for instance, collateral under a secured loan agreement, may only be filed after obtaining general or special grounds for enforcement. In addition, the claim must be enforceable.

The general grounds for enforcement of debt are listed in the Enforcement Act section 4-1 letters (a) through (h) and include judgment from a Norwegian court. These general grounds provide a basis for enforcement, regardless of the collateral asset. The special grounds for enforcement differ, depending on what kind of asset is agreed upon as collateral. However, an agreement for collateral with a perfected security interest will constitute special grounds for enforcement for all types of assets, cf the Enforcement Act sections 8-2, 9-2, 10-2, 11-2 and 12-2.

Providing the existence of grounds for enforcement is established, the question is whether the claim is enforceable. Chapter 4 parts III to V provides the terms for enforceability. One prerequisite is that the claim is overdue and that the unpaid debt at the due date constitutes a breach of contract, cf section 4-4. Under Norwegian law, lack of payment at the due date does not imply a breach of contract if the reason for the lack of payment is the creditor's default. In the event of insolvency for the debtor, grounds for enforcement are still applicable, provided the agreement has legal protection, cf section 4-9.

In summary, a secured lender can enforce its collateral in the event of a missing payment at the due date if this constitutes a breach of contract.

In addition to the rules on grounds for enforceability, there are rules on the proceedings when enforcing a claim. Inter alia, enforcement can only be filed by the legal person mentioned in the basis for enforcement as entitled or a legitimate acquirer of the claim.

Shares, other securities and account claims can as an alternative to the Enforcement Act be pledged in favour of banks, trustees and similar institutions under the Collateral Act. The act is an implementation of Directive 2002/47/EC on financial collateral arrangements.

Pursuant to the Collateral Act, security over the collateral can be enforced in accordance with the agreements between the security-provider and the security-holder, always provided that the realisation or valuation of financial collateral and the calculation of the relevant financial obligations must be conducted in a commercially reasonable manner.

For legal questions under the law of contracts and torts, the general rule is that the parties themselves can agree to have foreign law as the governing law of the contract. This is referred to as the autonomy of the parties and implies that Norwegian courts will uphold a choice of foreign law as the governing law of the contract. Normally, an agreement of choice of law must be made explicitly, however, it is not required to be made in writing. Without an explicit choice of law, an implied choice of law may also be accepted under Norwegian law.

The rules regarding questions of choice of law in property law are somewhat different. Generally, the parties themselves may not choose the governing law regarding questions of property law. In principle, these questions are regulated lex rei sitae. For real estate, lex rei sitae is where the real estate is located. The same applies to movable property (assets), unless the property can be registered in a registry. If so, the rule governing the property rights will be the law of the registrar state. This implies that Norwegian courts will not uphold a choice of foreign law as the governing law regarding property law, unless the choice is in line with the jurisdiction of lex rei sitae.

Regarding choice of jurisdiction, written agreements will generally be upheld, cf the Dispute Act section 4-6. However, there will be some exceptions to this general rule, eg, under the Ordre Public principle.

Under the Lugano Convention, which applies as Norwegian law, the right to enter into jurisdiction agreements is limited for only a small number of disputes, where according to the Lugano Convention there is a compulsory jurisdiction. Disputes concerning, inter alia, property rights in real estate and company law matters must be brought before the court specified in Article 22 of the Lugano Convention. For all other disputes, the parties are free to choose jurisdiction among the courts of a Member State. There is therefore no restriction under the Lugano Convention on agreements of jurisdiction in favour of a court that is covered by the principle of mutual trust.

Due to a ruling from the Norwegian Supreme Court, there are certain uncertainties as to the requirement for when a Norwegian company can validly create security over its assets under security agreements governed by foreign law. The relevant case was regarding the assignment of monetary claims, but it is uncertain whether the principles laid down by the Supreme Court are also applicable for other assets and rights. It is therefore generally recommended to ensure that such foreign law security also complies with Norwegian law requirements, including for the perfection. 

The Lugano Convention gives judgments effect both as legally binding and enforceable with a few narrow exceptions in Articles 33 and 34, cf Articles 45. Outside the scope of the Lugano Convention, The Dispute Act sections 19-16 states that final and enforceable rulings on civil claims rendered by a foreign court shall be final and enforceable in Norway if jurisdiction has been agreed, pursuant to Section 4-6 for a specific action or for actions that arise out of a particular legal circumstance. Neither sections 19-16 nor 4-6 demand reciprocity.

Regarding arbitral awards, the Arbitration Act section 45 states that an arbitral award shall be recognised and enforceable without regard from which country it derives. There are some narrow exemptions in section 46, however, the main rule remains that arbitral awards are enforceable in Norway. The Arbitration Act does not have requirements as to where the foreign arbitral award may come from nor of reciprocity. 

There are no general matters under Norwegian law that might impact a foreign lender's ability to enforce its rights under a loan or security agreement compared to a Norwegian lender. It should, however, be noted that, if the plaintiff is based outside Norway/EEA, the defendant may demand that the plaintiff provide satisfactory security in case the plaintiff becomes liable for paying the defendant's legal costs.

Contrary to that which is the case in many jurisdictions, under Norwegian law, the business activity of lending is subject to strict licensing requirements. Only certain financial institutions are eligible for a licence permitting them to conduct the business of lending in Norway.

Licensed EU/EEA credit institutions as defined in CRD IV (directive 2013/36/EU and regulation 575/2013), meaning banks and other similar lending institutions which fund themselves from the public, domiciled within another EU/EEA country than Norway, may, upon completing certain notification procedures, provide lending services cross-border into Norway, ie, lend to a Norwegian resident without having a physical presence in Norway.

However, other foreign financial institutions, which are either financial institutions domiciled within the EU/EEA area which do not meet the requirements of being an EU/EEA credit institution (a typical example would be an investment fund), or financial institutions domiciled outside the EU/EEA area, irrespective of meeting the material requirement of being a credit institution, may not, pursuant to Norwegian law, provide lending services into Norway on a cross-border basis. Such institutions may only carry out the business activity of lending in Norway through a licensed physical Norwegian subsidiary or branch.

The granting of both security or guarantees as a business activity are subject to the same restrictions as those that pertain to lending (and as described in 4.1 Restrictions on Foreign Lenders Granting Loans). However, in the event that a Norwegian obligor grants security or a guarantee in connection with being granted a loan by a foreign lender, there are no restrictions on the Norwegian borrower's ability to provide that security.

The Norwegian foreign investment regime is generally liberal and open for foreign investments.

However, according to the Security Act, a contemplated change of control of a business, which is made subject to the act due to its importance for national interest or possession of graded information, shall be notified to the relevant ministry or the National Security Authority (as applicable). A change of control will only qualify if it involves at least one third of the ownership interest in the business or if the acquirer will otherwise gain a major influence over the business.

The authorities shall, within 60 business days from receiving that notification, inform the relevant acquirer of whether the change of control is accepted or if it is decided to send the matter to the Government for its assessment.

If the Government is of the opinion that the change of control may lead to a not insignificant risk that national security interest will be threatened, it may resolve to refuse, or impose certain conditions for, the transaction.

There are no restrictions on payments abroad or repatriation of capital by foreign investors, apart from applicable sanctions and any withholding tax that might be applicable; see 8.1 Withholding Tax.

There is no Norwegian legislation prohibiting a Norwegian company from holding bank accounts abroad.

Other than in relation to licensing requirements, there are no requirements to have the financing or project agreements registered or filed. The formalities and requirements should be assessed on a case-by-case basis, depending on the relevant type of project agreement.

General – Licence Requirements

In general, the utilisation of natural resources in Norway requires a licence from the relevant authority. This requirement applies to sectors such as, amongst others, aquaculture, energy (fossil and renewable) and mineral extraction.

With respect to project financing, certain parts of the energy sector have been deemed especially attractive. Onshore wind projects and small-scale hydropower projects have in particular been regarded as suitable. The introduction of renewable energy certificates, and the subsequent merger of the Norwegian and Swedish markets in 2012, has further driven the interest for onshore wind and small-scale hydropower. With the recent developments in the offshore wind sector in Norway, which includes the opening of two new areas, project financing is likely to be an attractive way of funding projects in the offshore renewable sector as well. 

Within the energy sector, the licence authority lies with the Norwegian Parliament, the Norwegian Ministry of Petroleum and Energy and the Norwegian Water Resources and Energy Directorate. 

Wind Power

Licence requirements

Pursuant to the Energy Act, facilities for the generation, conversion, transmission and distribution of electrical energy cannot be built, owned or operated without a licence. The Offshore Energy Act stipulates similar requirements, ie, that a licence is required in order to build, own or operate generation and grid facilities in areas covered by the Offshore Energy Act, which includes Norway's territorial sea outside the baselines and to the continental shelf. According to the Offshore Energy Act, a licence may, however, only be granted to a legal entity established pursuant to Norwegian law and registered in the Norwegian Register of Business Enterprises (No Foretaksregisteret), unless otherwise provided by international agreements, eg, the Agreement on the European Economic Area. Corresponding requirements are set out in the petroleum legislation but not in the Energy Act, where there are less stringent formal requirements.

Grid companies are mostly owned by municipalities and country authorities. Distribution grid companies may obtain general local area licences, by which they are exempted from the licence criteria for each separate installation within the relevant area. Grid companies will also operate their grids pursuant to a trading licence, which ensures the efficient operation, utilisation and development of the grid.

Development of onshore wind

In order to develop an onshore wind power plant, the developer needs to hold the necessary rights, eg, property rights. Usually, the developer will lease the necessary property rights from the affected landowners, but the developer might also obtain the necessary rights by expropriation in accordance with the Expropriation Act. With respect to the licence, this is usually held by a limited-liability project company established pursuant to Norwegian law, as this is deemed as a practical arrangement. 

Development of offshore wind

Offshore renewable energy generation in Norway is governed by the Offshore Energy Act. The Act states that the right to exploit renewable energy sources at sea belongs to the State. This differs from the corresponding section in the Petroleum Act, in which the State is given property rights to sub-sea petroleum deposits.

The application for a licence to develop an offshore wind farm may only be submitted after the Government has opened specific geographical areas for licence applications. As of 1 January 2021, two areas were opened by the Government, namely, Utsira Nord and Sørlige Nordsjø II. There has been widespread interest amongst various energy utilities with respect to the two areas, which has led to the creation of several consortiums consisting of both large Norwegian and European corporations.

On 11 June 2021, the much-anticipated white paper "Putting Energy to Work" was presented, along with guidelines to the offshore wind application process was released. The guidelines provide a more detailed description of the licensing process. The Ministry also made several recommendations for amending the Offshore Energy Act and the Offshore Energy Regulation.

Hydropower

The utilisation of water for electricity generation in Norway is subject to extensive legislation setting of the different licensing requirements.

Under the current rules, licences may only be issued to public bodies and to companies where those bodies hold at least two thirds of the capital and votes in the company. Hence, private investors are prohibited from holding more than one third of the shares in a large hydropower production company that holds a licence under the Waterfall Rights Act. The Act, and the public ownership requirement, does not, however, apply to small-scale hydropower projects below certain thresholds, which for the last few years have been subject to substantial foreign investments.

The concept of a trust, originating from common law, is not recognised under Norwegian law. Security agents and/or facility agent will, however, generally be recognised when acting on behalf of finance parties or secured parties in relation to inter alia finance and security documents.

The Norwegian Supreme Court has ruled that a bond trustee may in its own name represent the bond-holders in legal proceedings. There has not been any similar ruling with respect to security and facility agents, thus the finance parties and secured parties may be required to appear in their own name in legal proceedings.

The general rule governing priority of competing security interest under Norwegian law is the first-in-time doctrine. The core of the doctrine is that the security interests that are the first to be established shall have the better priority.

There are, however, certain exceptions from this doctrine:

  • if a security interest relates to an asset that can be registered in an asset register, the security which was first registered will take priority, regardless of when it was established;
  • if a security interest relates to an asset that can be registered with an approved register and thereby obtaining legal protection, that registered security will rank ahead of a general floating charge;
  • creditors can generally agree to a lower priority than that which they otherwise would have, either by a contractual subordination or by consenting to another registered security achieving a better priority.

To enjoy protection in the case of an insolvency, the security interests must be fully perfected, see 2.1 Assets Available as Collateral to Lenders, and the applicable hardening period will need to have lapsed. Non-perfected security will be ranked equal to unsecured creditors, despite contractual agreements on priority.

There are no general statutory requirements for the incorporation or organisation of a project company under a Norwegian law project financing. Such requirements may, however, follow from the laws and regulations which are applicable for the project company's activities.

Project companies are typically special-purpose vehicles created solely to finance and operate the projects they are involved in, which are organised as Norwegian private limited liability companies.

The sponsors will be direct or indirect shareholders in the project company. Nordic lenders will often prefer that the parent companies are incorporated in Norway in order to have a complete Norwegian structure for the project financing.

Prior to 11 May 2021, the restructuring of a company and the corresponding procedures were set out in the Debt Negotiation and Bankruptcy Act (the DNB Act). However, due to the outbreak of COVID-19 and the regulations set forth in the DNB Act being somewhat outdated, the Act on Restructuring was enacted in 2020 (the Restructuring Act).

The Restructuring Act aims to make it more accessible and practicable for a company to go through a restructuring, rather than filing for bankruptcy. The main purpose is therefore to avoid bankruptcy in situations where a company in general is profitable, but is experiencing temporarily financial difficulties.

The Restructuring Act has similarities to the reorganisation systems in the USA (Chapter 11), the UK and Europe in general.

The main features of the Restructuring Act are as follows.

  • A debtor may seek restructuring under the Restructuring Act prior to being unable to pay its debt as it matures, ie, at a time where it is expected to get into such financial difficulties, cf the Restructuring Act section 2. A creditor may also petition for restructuring, but the debtor may reject and effectively bar that reconstruction, cf the Restructuring Act sections 3 (3) 5 (1), No 4.
  • A lawyer is appointed as a "reconstructor", together with a creditor committee consisting of between one and three persons, cf the Restructuring Act section 8.
  • A report is put together by the reconstructor and the creditor committee and thereafter a restructuring plan is proposed, all within four weeks of the restructuring proceedings being opened, cf the Restructuring Act section 22 (1).
  • In a voluntary restructuring, there is no requirement for equal treatment of the creditors, as it needs a unanimous vote from the creditors in order to pass. In cases of forced restructuring, a minimum of 50% of the creditors must agree.
  • The restructuring under the Restructuring Act may entail:
    1. a moratorium on debt;
    2. a debt reduction;
    3. a conversion of debt to equity (which only requires a simple majority vote);
    4. the transfer of all or part of the business and assets to a new owner without the debtor being liquidated;
    5. the transfer of all or part of the business and assets to a new owner against relief of the debt not covered by a liquidation; or
    6. a combination of the above.

For compulsory reconstruction, the list is exhaustive, whilst other measures may be taken in a voluntary restructuring.

  • Under the restructuring period, the debtor is barred from being put under bankruptcy proceedings and any other enforcement.
  • The restructuring and the debtor's business during the restructuring may be financed by a "super senior" loan, whereby a lien can be created as a security for the loan in the inventory, machinery and plant and outstanding claims.

If the restructuring fails, the alternative is bankruptcy.

In the event of bankruptcy proceedings, all the assets of the borrower, pledgor and/or guarantor are seized as one to the advantage of the creditors. However, the bankruptcy proceeding does in principle have no effect on a creditor who has a valid security created over the asset(s) of the debtor (provided there are no claw-back possibilities, see 6.4 Risk Areas for Lenders). According to the Mortgage Act (the Mortgage Act), the underlying claim becomes due upon the opening of bankruptcy proceeding. 

There are, however, a few practical rules regarding the process of enforcing the security during a bankruptcy proceeding one should be aware of, such as the following.

  • There is a general time-bar of six months before the mortgagee may effectuate a sale of the security. This does not apply for security that is subject to the Financial Collateral Act, such as security over financial instruments.
  • The bankruptcy estate may "buy out" the mortgagee at the face value of the loan.
  • The bankruptcy estate may in some cases (although they are unusual and under strict conditions) sell the mortgaged assets if a wholesale (whereby the mortgaged assets are included) provides better coverage than a single sale. The mortgagee may not then receive the full amount to which it would be entitled under the agreement with the debtor.
  • The bankruptcy estate may abandon the mortgage asset in favour of the debtor. The mortgagee may then initiate a forced sale (or agreed sale if applicable) with the debtor, pursuant to the relevant provisions for the same.
  • The bankruptcy estate may transfer the mortgaged assets to the mortgagee if the mortgagee consents to this.
  • The Mortgage Act includes a statutory mortgage in favour of the estate, cf section 6-4. The legal mortgage applies to all of the debtor’s assets on which it rests a pledge or a mortgage, and that may be subject to execution or bankruptcy seizure. It will also apply to assets that a third party has put up as security for the debtor’s debt. The legal mortgage is limited to 5% of the asset’s estimated value or the revenue from a sale of that asset, but limited to a maximum of 700 times the court fee in each asset registered in an asset register (at present, NOK839 300). The lien has the best priority in that property.
  • In the event of restructuring, as stated in 6.1 Company Reorganisation Procedures, a security cannot be enforced without the prior written consent of the reconstructor.

The secured creditors (including the statutory lien of the bankruptcy estate) have first priority, and will be paid before any other creditors. In the event the bankruptcy estate is able to make a claim under the statutory lien, those funds are also to cover the costs of the bankruptcy proceedings. The same applies for a statutory lien created for property tax, cf the Mortgage Act section 6-1, in the event that the debtor is the owner of any property.

Provided the foregoing has been covered (or is not applicable, the creditors are paid in the following order (cf The Satisfaction of Claims Act (the Claims Act) chapter 9). In essence, the priority of payment in an insolvency is as follows:

  • costs related to the bankruptcy estate (not covered by the statutory lien), so-called preferential claims (No: massekrav);
  • specific employee claims (ie, unpaid wages, holiday pay, unpaid pension, so-called preferential claims of first class (No: Fortrinnsberettigede krav av første klasse));
  • taxes, VAT and social insurance; classed preferential claims of second class (In No: Fortrinnsberettigede krav av annen klasse);
  • unsecured claims;
  • specified interest claims (ie, interests on claims after opening of bankruptcy proceedings);
  • subordinated claims.

Usually, there will only be some (or none at all) coverage of unsecured claims. If there is not enough to cover all unsecured claims, they will receive a dividend. There will rarely be any coverage for the specific interest claims or subordinated claims.

In addition to the practical considerations as previously stated in 6.2 Impact of Insolvency Process, the Claims Act contains several claw-back provisions, whereby a payment, security or guarantee may be deemed null and void.

The court can set aside certain transactions that the debtor entered into before the opening of the proceedings, but at a time when it was already in a distressed financial situation (claw-back). To prevent the creditors being deprived of enforcing their claims against such assets, the liquidator, acting on behalf of the insolvency estate, will apply for these transactions to be set aside. This includes transactions such as:

  • gifts – transactions involving a gift element can be set aside if they are completed less than one year before the opening of proceedings;
  • set-off – payments made by set-off can be set aside if the counterclaim against the debtor was acquired less than three months before the opening of bankruptcy proceedings, provided the set-off is made against a claim that the debtor had before the counterclaim was acquired;
  • security – any security that is provided by the debtor may be set aside if the security is given less than three months before the opening of the proceedings if (i) the security is granted for old debt, or (ii) the legal protection was not acquired within a reasonable amount of time;
  • extraordinary payments – a court can set aside a payment that was made later than three months before proceedings were instituted if the payment was made (i) with an unusual means of payment, (ii) before payment was due or (iii) with an amount that substantially reduced the debtor’s ability to pay, provided, however, that the payment, taking the circumstances into consideration, did not appear ordinary after all;
  • bad faith – a court may set aside payments (or other transactions) for a period of ten years before opening the bankruptcy proceedings, if the transactions involve an element of bad faith and the counterparty knew that the debtor was in a difficult financial situation.

If a transaction is set aside as a result of any of the claw-back provisions, the receiving party of the transaction must return to the estate that which was received from the debtor.

The main principle is that all entities can be subject to bankruptcy proceedings unless there is explicit regulation stating the opposite. Certain entities are explicitly excluded from bankruptcy proceedings, such as:

  • banks, insurance companies and certain other financial institutions (regulated by the Financial Institutions Act);
  • hospital trusts (regulated by the Health Enterprises Act);
  • municipalities and county authorities (regulated by the Local Government Act);
  • state enterprises (regulated by the Act relating to state-owned enterprises).

There are no restrictions or controls regarding insurance policies over project assets provided or guaranteed by insurance companies.

However, compensation paid by a foreign insurance company under an insurance policy may be subject to Norwegian income tax. This would depend on whether the compensation is in regard to total or partial damage to the asset, and if the asset is a business asset or a commodity/current asset.

Compensation relating to total or partial damage to current assets in income-producing activities may be taxable. In the event of total damage to a business asset, compensation for such damages will be included to calculate taxable profit or loss. Certain rules will apply, depending on the type of business asset in question. Only partial damage to a business asset is not considered a taxable event.

Insurance policies over project assets can be payable to foreign beneficiaries and the monetary claims thereunder can be assigned as security in favour of foreign creditors.

Interest payments on debt to related companies in low-tax countries is subject to 15% withholding tax (WHT).

The main purpose behind the rules is to counteract related-party transactions resulting in Norwegian tax-base erosion and profit-shifting; only payments to related companies in low-tax countries are affected.

Related companies are regarded as companies which directly or indirectly own or control another company by at least 50%. The limitation to low-tax countries is defined in the same way as in the Norwegian-controlled foreign corporation (CFC rules) and tax legislation in general, which essentially entails a limit where the ordinary income tax on the profit of the company amounts to less than two thirds of the tax the company would have been subject to if it had been tax-resident in Norway.

To ensure that the rules on withholding tax are in accordance with EEA law, payments to enterprises that are established and conduct real economic activity within the EEA are exempted from withholding tax. The right to impose withholding tax may further be limited or cut off by provisions on taxation of interest included in tax treaties with other jurisdictions.

The payer of interest (the borrower) is the one who reports, assesses tax liability and makes tax deductions.

The definition of interest follows the general definition of interest in Norwegian tax law. For financial lease transactions, this entails that such payments should only be subject to withholding tax if the interest element of the lease payment qualifies as interest for tax purposes. This is not a clear-cut limitation and the Ministry of Finance has previously commented that whether remuneration for leasing is to be regarded as interest payments must be assessed based on the circumstances in the individual case.

The withholding tax is a gross tax without any deductions.

Under Norwegian law, there are no general taxes, etc, relevant to lenders. Norway has rules regarding limitations on deductibility of interest; however, these rules concern the borrower's ability to deduct interest costs.

Under Norwegian law, there are currently no general laws or rules limiting the amount of interest that can be charged, other than a general clause under the Contracts Act authorising courts to set aside or amend agreements if it would be unreasonable or in conflict with a generally accepted business practice legal basis to invoke it.

Under the new Financial Agreements Act, which will come into effect in 2022, interest and other compensation which obviously are disproportionate to the credit granted, or which unfairly take advantage of a dependency, debt problem or financial distress, will not be valid.

The governing law of the main project agreements for Norwegian projects is usually Norwegian or English, but the law of another jurisdiction may be agreed between the parties. Project agreements in PPP transactions are always governed by Norwegian law.

The governing law of financing agreements are dependent on the sponsors' and lenders' preferences. In addition to Norwegian law, English and German law are the most common choices of law for the project financing of Norwegian projects.

Security agreements for Norwegian assets are usually governed by Norwegian law. Collateral located outside of Norway is, however, often governed by the laws of the relevant jurisdictions (see 3.2 Foreign Law).

Advokatfirmaet Simonsen Vogt Wiig

Filipstad Brygge 1
0252 Oslo
Norway

+47 21 95 55 00

+47 21 95 55 00

post.oslo@svw.no www.svw.no
Author Business Card

Trends and Developments


Authors



Advokatfirmaet Simonsen Vogt Wiig is one of the largest law firms in Norway, with offices in the major cities in Norway and in Singapore. The firm's 180 lawyers represent clients within all industries and sectors, across all legal functions and areas of expertise. Simonsen Vogt Wiig has a finance team consisting of six partners and 16 non-partners, representing both lenders and borrowers, working across all sectors. The firm advises its clients with all types of financing, including project finance, syndicated lending, direct lending, leveraged lending, asset lending, refinancing, restructurings and leasing. Simonsen Vogt Wiig has been at the forefront of developments in project financing deals within land-based wind and hydro power and also has experience with cross-border project financing within offshore wind.

Overview of Trends in Norwegian Project Finance

Onshore wind

Onshore wind power production has been the main driving force for project finance in Norway during the last decade. The largest Scandinavian banks, along with various continental banks, have financed a considerable number of projects across the country during a boom in licensing and construction.

This segment has, however, seen diminishing activity in the last few years, with no new projects having been licensed by the Norwegian Energy Regulatory Authority since 2019. Recent proposals for new legislation amending the licensing regime, spurred by growing division in public opinion on construction of wind-power plants, have led several industry players to predict that there will be few or no new projects green-lit in the next five to ten years.

It has been argued that the development of onshore wind projects is bound to regain impetus before too long, as the commercially viable development of new energy sources such as offshore wind is still too far off to be relied on to increase the total renewable power production in the years to come. Due to the negative public opinion that has been seen in recent years against the construction of new onshore wind farms, any such recovery will most likely be dependent on the implementation of the aforementioned adjustments to the licensing regime, as well as certain adjustments to the current tax regime, to the benefit of, amongst others, the relevant municipalities. 

Small-scale hydropower

While the majority of the total Norwegian hydropower production capacity is publicly owned, there is significant private ownership (and rapidly growing foreign investment) in small-scale hydropower – particularly river-based plants, ie, generators utilising river flow instead of man-made reservoirs. Project financing, or other types of financing with elements from project financing, continues to be an important means for financing such projects.

Small-scale hydropower is generally anticipated to see continued activity going forward, especially if a rebound within onshore wind does not materialise. There is still unfulfilled production capacity to be accessed, particularly by upgrading existing plants. Further, many older plants are becoming outdated and will require modernisation and re-investment in the years to come. Moreover, while there are potential challenges for large-scale hydropower projects under the EU taxonomy, due to their impact on local ecosystems, less intrusive river-based plants are looking more likely to qualify as environmentally sustainable.

Other and new segments

Due to the downturn in onshore wind, banks present in the Norwegian project finance market have increasingly looked abroad for new projects. As an example, KLP (Kommunal Landspensjonskasse Gjensidig Forsikringsselskap) and DNB Bank ASA (Norway's largest pension fund and bank respectively) announced in February 2020 a partnership to invest NOK12 billion in renewable energy and infrastructure through project financing, most of which will be invested in solar and wind-power projects outside Norway.

There are, nevertheless, still examples of project financings within various sectors also in the domestic market, including in connection with optical fibre projects and data centres.

There are expectations that project finance could play an important role in several new industries in which projects are likely to be realised in the near to mid-term future. This includes new renewables projects such as hydrogen, ammonium biofuel, methanol and solar power, as well as other infrastructure projects like battery parks, data centres, district heating facilities, carbon capture and storage facilities and land-based aquaculture.

The challenge for such industries to attract project financing will be to graduate past mere pilot projects and demonstrate sufficiently viable technical solutions and robust cash-flows for financiers to be able to accept the risk when financing the projects. In the case of hydrogen projects, long-term offtake contracts with ferry owners and other coastal shipping operations are already being investigated as a potential route for securing stable income.

Floating offshore wind also attracts considerable interest (both in the media and on stock markets) but is not expected to be a candidate for project financing just yet, due, amongst other things, to uncertainties relating to the technical solutions and future cash-flow. A more likely scenario appears to be that inaugural projects will be undertaken by industry heavyweights (see under Licensing rounds for the first offshore wind projects) and financed over their balance sheets.

Public-private partnerships

While there are examples of projects (particularly highways, but also schools, hospitals and similar) constructed through public-private partnerships in Norway, governments have traditionally opted to fund public infrastructure on their own. In addition to the strong public economy limiting the need for private involvement, PPPs have traditionally been subject to political scepticism in Norway. This mode of financing is accordingly relatively uncommon.

Further, the centre-left majority yielded by the 2021 parliamentary elections is unlikely to initiate more extensive use of PPPs during the next four-year term.

Small-scale project finance

While outside what is typically referred to as traditional project finance, project finance structures are also commonly used in smaller-scale investment projects within various industry sectors.

In the Norwegian market, this is particularly widespread in the shipping/offshore and real estate sectors, where brokers and arrangers set up a considerable number of investment vehicles each year, part-financed by non-recourse bank debt on the basis of the relevant project's assets and expected cash flow.

Shipping projects have been especially numerous during the past year, as container shipping in particular has seen record freight rates since the early days of the COVID-19 pandemic.

New Market Developments

Green and sustainability-linked loan principles

Among the hottest topics in finance these days, green and sustainability-linked loan principles (such as sustainability-related covenants and compliance-linked margin reductions or increases) are increasingly finding their way into loan agreements.

In the context of project finance, some industry players expect that the general framework of the EU taxonomy will prove a more important tool for encouraging sustainability, with favourable terms being allocated on the basis of a borrower's eligibility under the taxonomy rather than its compliance with project-specific covenants imposed by the lender. Within industries that do not qualify as sustainable under the EU taxonomy, such specific principles may, however, still be an important tool for financiers to push borrowers in a more sustainable direction.

White paper on energy-investment strategy

In June 2021, the Norwegian Government published its white paper "Putting Energy to Work", a roadmap for using Norway's energy resources to create continued economic growth and jobs.

Among the goals highlighted in the paper is the establishment of new and profitable energy-related industries, including offshore wind power, hydrogen production, CSS and battery parks. As previously noted, financiers expect a resurgence of project financings in the Norwegian market on the back of new initiatives within these industries.

As part of these goals, and as further detailed in the accompanying "Roadmap for Hydrogen", the Government targets the establishment by 2025 of one to two industrial projects for production of hydrogen, as well as five to ten pilot projects for showcasing new and cost-effective hydrogen solutions and technologies.

The white paper also points to new investments in strengthening the power grid, including electrification of the Norwegian continental shelf, and development of new (lower emission) oil and gas projects.

Licensing rounds for the first offshore wind projects

Effective from 1 January 2021, the first areas for development of offshore wind power in Norway, "Utsira Nord" and "Sørlige Nordsjø II", both in the North Sea, were opened for licence applications. A number of industry heavyweights, including Equinor, Hydro, Statkraft, Aker, Wilhelmsen, Ørsted, Eni and RWE, have already signalled their intention to participate in the licensing rounds.

While the relatively shallow waters at "Sørlige Nordsjø II" allow construction of fixed wind turbines, floating turbines is the only viable option at "Utsira Nord". This technology is currently not commercially viable without public funding, and it is unclear what role project financiers will play in these first forays into offshore wind in Norway.

Regulatory Developments

Sustainable Finance Act

In June of 2021, the Norwegian Government submitted a proposal to Parliament for a new Sustainable Finance Act. The Act will implement the EU Taxonomy Regulation in Norwegian law and is intended to direct more private investment into sustainable activities.

The taxonomy is likely to benefit a number of the new industry sectors which are deemed future candidates for project financing in the Norwegian market.

New Reconstruction Act

In the spring of 2020, a temporary Reconstruction Act was adopted for the purpose of counteracting avoidable bankruptcies caused by the COVID-19 pandemic. The Act supplants the existing rules on debt renegotiations found in the Insolvency Act and introduces significantly more progressive tools for reorganising companies in financial difficulties, more akin to those of US Chapter 11 processes.

Importantly, the Act allows creditor majorities to override dissenting minorities in votes over binding reorganisation plans. The rules on debt renegotiations, however, require unanimous support among creditors and have accordingly found little practical use.

A number of companies have successfully emerged from reconstruction in the course of the past year, notably Norwegian Air Shuttle ASA. The Act is generally deemed a successful addition to Norwegian law and is expected to be succeeded by a permanent act on its scheduled expiry in January 2022.

New Financial Agreements Act

A new Financial Agreements Act was adopted by Parliament in December 2020 and is expected to come into force in the first half of 2022.

The Act sets out the main rules applicable to financial services-providers, including mandatory requirements regarding credit-facility agreements. The amendments as compared to the existing Financial Agreements Act, however, mainly relate to consumer protection and will have limited impact on project finance as such.

Registration of the first wind turbine in the Norwegian ship registers

A crucial, and to some extent, unresolved question for project financiers eventually looking to tap into offshore wind, is how to obtain the necessary security in the project's assets.

The Offshore Renewable Energy Production Act, which regulates offshore wind production in Norway, does not currently address this issue. For the time being, a development licence for the construction and operation of offshore wind farms, as well as for fixed wind turbines, is therefore off limits for financiers.

However, many have pointed to the Norwegian ship registers as potential harbours for mortgaging floating wind turbines, as the Maritime Code intriguingly allows for the registration of and mortgages over "floating devices". While other floating devices than ships require the case-by-case consent of the Norwegian Maritime Authority, the "Unitech Zefyros by Hywind Technology", a prototype turbine previously used for testing purposes by Equinor, was approved for entry in the Norwegian Ordinary Ship Register (NOR) in 2020. With this, the Maritime Authority appears to have set a precedent for welcoming such devices into the ship registers going forward.

Advokatfirmaet Simonsen Vogt Wiig

Filipstad Brygge 1
0252
Oslo
Norway

+47 21 95 55 00

+47 21 95 55 00

post.oslo@svw.no www.svw.no
Author Business Card

Law and Practice

Authors



Advokatfirmaet Simonsen Vogt Wiig is one of the largest law firms in Norway, with offices in the major cities in Norway and in Singapore. The firm's 180 lawyers represent clients within all industries and sectors, across all legal functions and areas of expertise. Simonsen Vogt Wiig has a finance team consisting of six partners and 16 non-partners, representing both lenders and borrowers, working across all sectors. The firm advises its clients with all types of financing, including project finance, syndicated lending, direct lending, leveraged lending, asset lending, refinancing, restructurings and leasing. Simonsen Vogt Wiig has been at the forefront of developments in project financing deals within land-based wind and hydro power and also has experience with cross-border project financing within offshore wind.

Trends and Development

Authors



Advokatfirmaet Simonsen Vogt Wiig is one of the largest law firms in Norway, with offices in the major cities in Norway and in Singapore. The firm's 180 lawyers represent clients within all industries and sectors, across all legal functions and areas of expertise. Simonsen Vogt Wiig has a finance team consisting of six partners and 16 non-partners, representing both lenders and borrowers, working across all sectors. The firm advises its clients with all types of financing, including project finance, syndicated lending, direct lending, leveraged lending, asset lending, refinancing, restructurings and leasing. Simonsen Vogt Wiig has been at the forefront of developments in project financing deals within land-based wind and hydro power and also has experience with cross-border project financing within offshore wind.

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