The most common types of financial assets securitised in Sweden are:

• loan receivables (eg, consumer, SME, mortgage or auto loans);
• lease receivables (eg, auto leases); and
• trade receivables.

The usual transaction structure in a Swedish securitisation, for each of the financial asset types set out in 1.1 Common Financial Assets, involves:

• an originator;
• a servicer;
• an issuer;
• one or several investors (lenders); and
• certain specified third parties (including a cash manager, a back-up servicer and an account bank).

The originator, which is normally also the servicer of the receivables post-transfer to the issuer, transfers the underlying assets to the issuer. As outlined in 6.1 Insolvency Laws, 6.2 SPEs and 6.4 Construction of Bankruptcy-Remote Transactions, the issuer is a newly established bankruptcy-remote SPE. The transfer and the servicing agreement are structured to ensure a true sale of and security over the underlying assets.

The purchase of assets in accordance with the receivables-purchase agreement (RPA), as further outlined in 3.1 Bankruptcy-Remote Transfer of Financial Assets, is made based on certain eligibility criteria and financed by the investors pursuant to a facilities agreement. The investors are usually major national or international banks, asset managers, debt funds or other credit institutions. In addition to the senior and junior investors, the originator retains a material net economic interest in the securitisation of at least 5%, in accordance with the Securitisation Regulation (see 4.1 Specific Disclosure Law or Regulations), by making a subordinated facility available to the issuer.

In order to maintain the independence of the securitisation structure in relation to the potential bankruptcy of the originator, a back-up servicer is engaged. In the event of the originator’s bankruptcy or the issuer’s termination of the appointment of the servicer, for example, such back-up servicer can step in and continue the servicing of the transferred assets on substantially similar terms.

The applicable laws and regulations are as follows:

• the EU Securitisation Regulation;
• the Bankruptcy Act (1987:672);
• the Instruments of Debt Act (1936:81);
• the Companies Act (2005:551);
• the Consumer Credit Act (2010:1846);
• the Banking and Financing Business Act (2004:297); and
• the Currency Exchange and Other Financial Operations (Reporting Duty) Act (1996:1006).

The most common jurisdiction of incorporation for SPEs today is Sweden, but it is not uncommon (especially not historically) to use an orphan SPE set up in Luxembourg or Ireland for tax and/or regulatory reasons and purposes.

A number of different forms of credit enhancement have been used in the Swedish market over the last couple of years, including:

• subordination;
• over-collateralisation;
• cash reserves;
• deposits;
• guarantees;
• letters of credit;
• credit default swaps; and
• other forms of insurance.

Furthermore, and as addressed in 4.12 Participation of Government-Sponsored Entities, the European Investment Fund has in certain cases provided guarantees to investors as part of its credit enhancement programme.

The role of the issuer is to own the securitised assets and to act as pledgor and borrower in relation to the securitisation investors. The issuer is typically a bankruptcy-remote SPE in the form of a limited liability company, usually established for the sole purpose of the securitisation transaction.

In most Swedish securitisations, the sponsor is also the originator and seller (see 2.3 Originators/Sellers). In global or European trade receivables securitisation programmes for industrial companies, the sponsor is sometimes a parent company located outside Sweden, while the originator/seller is a Swedish subsidiary that originates the Swedish receivables as part of the programme.

The role of the originator/seller is to originate, and subsequently to sell to the issuer, the underlying assets by adhering to certain established and agreed-upon eligibility criteria in connection with the origination of such assets. An originator is usually a retail lender, SME lender, bank or industrial company with portfolios of trade receivables.

Underwriters and placement agents, sometimes referred to as managers and/or arrangers, are usually not engaged or involved in Swedish law-governed securitisation transactions. Instead, transactions are usually managed directly between the originator, issuer and lender, with the latter often being a financial institution (eg, a major bank or asset manager). Consequently, book-building processes and similar steps are uncommon on the Swedish market.

The role of the servicer is to service the transferred receivables and thus to function as the main point of contact for the debtors under the securitised receivables. The servicer is usually the originator/seller of the receivables.

Investors are usually:

• major national or international banks;
• asset managers;
• debt funds; or
• other credit institutions.

Bond/note trustees are not required, but is common for the bondholders/noteholders to appoint an agent that represents them in relation to the issuer, and which acts as a middleman for facilitating dealings and information between the issuer and the bondholders/noteholders. If bond/note trustees are not used, this is typically because there is only one bondholder/noteholder of each class; though in rare instances where there are only a few bondholders/noteholders, such holders can also choose to act and exercise rights through unilateral or majority decisions. 

Swedish law does not recognise the concept of a trust or trustees. However, it is common for a third party or, for example, an affiliate of a bank to act as a “security agent” in relation to the security granted for the benefit of the secured parties. The role of the security agent is to hold and administrate the security.

In order to achieve bankruptcy-remote transfers under a Swedish securitisation, two agreements are usually used:

• an RPA, sometimes referred to as a loan-purchase agreement, which is entered into between the originator as seller, the issuer as purchaser and the security agent; and
• a servicing agreement, which is entered into between the originator as servicer, the issuer and the security agent.

Core Provisions of the RPA

The RPA sets out the details for the sale and purchase of the receivables to be securitised. For example, it contains provisions about:

• the purchase price;
• the actions to perfect the transfer;
• lack of recourse; and
• if applicable, terms for the repurchase of transferred receivables by the originator.

The RPA usually also contains certain originator warranties and asset warranties made by the originator. The originator warranties are similar to standardised representations made by an obligor under an LMA-form facilities agreement, including representations about:

• status;
• power;
• capacity and authority;
• licences; and
• corporate approvals.

The asset warranties are more specific for a securitisation transaction, and include representations that:

• the loans comply with the agreed eligibility criteria;
• the loans are not subject to any security or encumbrance;
• the loans have been originated and, up until the transfer, administered in compliance with the applicable laws – eg, the Swedish Consumer Credit Act (Konsumentkreditlag (2010:1846)) in the case of consumer loans;
• records have been kept about all transactions, receipts, proceedings and notices in relation to the loans;
• adequate know-your-customer (KYC) checks have been conducted prior to origination of the loans; and
• the borrower has made no claims, by way of set-off or counterclaim, for example, against the originator that would render the whole or part of the transferred loan unenforceable.

Core Provisions of the Servicing Agreement

Under the servicing agreement, the issuer appoints the originator as its servicer to administer and to collect amounts due under the transferred loans in accordance with the originator’s credit and collection policy. Loan proceeds are often collected on an account held by the servicer, where such proceeds are held as escrow funds, and are then swept, by daily transfers, to an assigned account of the issuer.

Typically, the servicing agreement contains an indemnification provision whereby the servicer undertakes to indemnify the issuer against any cost, claim, loss and liability that has arisen in connection with a breach by the servicer of its liabilities and undertakings under the servicing agreement.

As outlined in 6.3 Transfer of Financial Assets, it is an established principle under Swedish law that, in order to achieve a true sale where the transferor shall continue to service the sold assets, the transferee of the receivables (ie, the issuer) must be able to terminate the appointment of the transferor (ie, the originator) as servicer for the transferred loans, at any time and at its sole discretion. Thus, the servicing agreement usually contains such discretionary provisions alongside customary provisions regarding the resignation or termination of the servicer.

In addition to the servicing agreement, the servicer, the issuer and the security agent often enter into a back-up servicing agreement with a third-party service provider. This agreement, together with the servicing agreement, forms the basis for the replacement of the servicer in the case of a termination or resignation, pursuant to the servicing agreement.

As outlined in 3.1 Bankruptcy-Remote Transfer of Financial Assets, asset-related warranties are the principal warranties used in securitisation documentation governed by Swedish law, besides standard corporate warranties relating to the originator and the SPE. Such asset-related warranties are mainly focused on compliance with agreed eligibility criteria, agreed concentration limits, and applicable laws and regulations.

Any breach of warranty would typically constitute an event of default and/or an early amortisation trigger event under the securitisation documentation, but any breach of asset-related warranties could usually be cured by a repurchase of the affected receivables by the originator within a certain period of time (and sometimes, a breach of asset-related warranties would only result in the affected loans falling out of the borrowing base without triggering an event of default if the borrowing base ratio is still being complied with).

As outlined in 6.3 Transfer of Financial Assets, the necessary perfection provisions depend on whether the receivables are non-negotiable promissory notes (enkla skuldebrev) or negotiable promissory notes (löpande skuldebrev). Generally, the necessary steps include:

• notifying the debtor of the transfer; and
• in the case of negotiable promissory notes, transferring the physical promissory note to the SPE.

In most cases, the secured parties will obtain a pledge over the transferred receivables, under which the security agent, acting on behalf of the secured parties, will obtain a power of attorney authorising it to do all such acts and take any steps necessary to establish, maintain and preserve the pledge. There is normally a high level of focus on ensuring that all relevant perfection steps are taken, and such perfection steps are typically conditions precedent to funding (both on the initial utilisation date and on future utilisation dates).

In addition to customary positive and negative covenants relating to the ring-fencing of the SPE and the assets and liabilities forming part of the securitisation, Swedish securitisation documentation usually includes certain covenants specific to the securitisation and the Swedish regulatory environment. For example, a company that intends to participate in financing by acquiring receivables and raising financing from financially regulated entities (eg, an issuer in a securitisation) does not need a licence from the Swedish Financial Supervisory Authority (SFSA) to conduct such activities. It does, however, need to register with the SFSA pursuant to the Currency Exchange and Other Financial Operations (Reporting Duty) Act.

Once registered, the company will be a so-called financial institution (finansiellt institut), which, in accordance with the aforementioned Act, will be subject to certain anti-money laundering and KYC obligations (for example). Until recently, the company could initiate its business as soon as the registration application was submitted to the SFSA. However, the SFSA has recently communicated that, going forward, registration must be completed before the company can start to acquire financial assets. This new development requires more focus on completing and filing the application for registration early on in the process in order not to create any delays. The securitisation documentation usually contains a covenant to retain such registration and a covenant restricting the company from raising financing from non-regulated entities.

In addition, depending on the applicable credit enhancement structure and the applicability of the Securitisation Regulation, the securitisation documentation usually contains a covenant to maintain risk retention in order to ensure compliance with the Securitisation Regulation.

Any breach of covenants would constitute an event of default and/or an early amortisation trigger event.

As outlined in 3.1 Bankruptcy-Remote Transfer of Financial Assets, the servicer is often the parent company of the issuer and is also the original originator of the receivables. Due to the close corporate relationship between the issuer and the servicer, the servicing agreement contains strict provisions about the services provided, including but not limited to:

• administration of the loans;
• record-keeping;
• the collection of loan receipts;
• reporting requirements (including requirements under the Securitisation Regulation); and
• related information undertakings.

A common Swedish law-governed structure (as further outlined in 1.2 Structures Relating to Financial Assets) entails that, following the transfer of receivables from the originator to the issuer, the debtor will continue to make payments of principal and interest into an account held by the originator, which will then make daily sweeps of collected monies to an account of the issuer. Given this typical structure, the servicing agreement usually contains provisions regulating that such loan receipts be held as escrow funds by the servicer on behalf of the issuer in order to avoid commingling with the servicer’s other assets.

Furthermore, as a result of the established true sale principles mentioned in 6.3 Transfer of Financial Assets and 3.1 Bankruptcy-Remote Transfer of Financial Assets, it is fundamental for the issuer to be able to terminate the appointment of the servicer, at any time and at its sole discretion. Consequently, the servicing agreement usually contains such arbitrary termination provisions.

Principal defaults used in Swedish securitisation documentation are similar to customary defaults in an LMA-form facilities agreement – ie, the following are common default triggers:

• non-payment;
• misrepresentation;
• breach of obligations;
• change of control; and
• a material adverse change.

Other securitisation-specific defaults commonly used include:

• the failure by the originator to comply with the risk-retention requirements of the Securitisation Regulation; and
• the failure to complete the registration as a financial institution pursuant to the Currency Exchange and Other Financial Operations (Reporting Duty) Act, as outlined in 3.4 Principal Covenants.

If the RPA contains a repurchase mechanism, under which the originator is obliged to repurchase transferred loans in certain situations, the failure to repurchase transferred receivables in order to cure an asset performance failure (for example) is a default.

Principal indemnities used in a Swedish securitisation are very broad and in line with international standards, including:

• indemnities for losses resulting from defaults;
• any finance party acting on requests or instructions by the issuer;
• currency indemnities; and
• tax indemnities.

Indemnities are usually subject to the applicable priority of payments, and exclude any situation where the otherwise indemnified party has acted with:

• gross negligence;
• fraud; or
• wilful misconduct.

The terms and conditions of the bonds/notes/securities are normally documented in a Note Facilities Agreement (either one combined for all tranches, or one separate for each tranche), which is based on standard LMA format but with adjustments to fit the securitisation structure.

The type of derivative used depends on the type of underlying asset, and on whether there is any mismatch as regards currencies (FX) or type of interest (fixed versus floating); however, typically the securitisation would be designed to match the underlying asset so that no hedging is required (other than in the form of credit enhancement to address credit risk).

In Sweden, an Offering Memorandum would take the form of a prospectus approved by the SFSA and would be prepared in accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council (the “Prospectus Regulation”), the adhering delegated regulations, and certain supplementary local laws and regulations.

The relevant requirements for (and exemptions to) preparing a prospectus follow directly from the Prospectus Regulation and are the same for securitisations as for other “regular” debt instruments. Generally speaking, a prospectus is required in relation to instruments that are offered to the public or that are otherwise admitted to trading on a regulated market.

As the vast majority of securitisations in Sweden take the form of unlisted and unrated private placements that are marketed and sold to either only qualified investors or to fewer than 150 investors (or both), a prospectus is rarely needed for purely Swedish securitisations.

Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 (the “Securitisation Regulation”) laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012) has been directly applicable and enforceable in Sweden since its adoption. Therefore, the transparency requirements under Article 7 of the Securitisation Regulation are applicable in relation to a Swedish securitisation.

In addition to the transparency requirements under the Securitisation Regulation, Swedish limited liability companies are subject to mandatory disclosure rules in accordance with:

• the Companies Act;
• the Accounting Act (bokföringslag (1999:1078)); and
• the Annual Reports Act (årsredovisningslag (1995:1554)).

Such disclosure rules include obligations to disclose annual reports and the company’s articles of association (for example), and to keep available an updated shareholders’ register.

In addition, publicly listed companies are subject to certain disclosure rules in accordance with:

• the Swedish Securities Act (Lag (2007:528) om värdepappersmarknaden);
• Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (the “Market Abuse Regulation”) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC; and
• the rules and regulations of the relevant regulated market where their shares are traded, as applicable.

Furthermore, financial institutions such as banks are subject to applicable disclosure provisions pursuant to the EU’s capital adequacy and liquidity regulation (CRR/CRD), which is directly applicable in Sweden.

There are currently no specific Swedish laws or regulations regarding credit-risk retention, other than the rules pursuant to the Securitisation Regulation. However, in accordance with Article 30.1 of the Securitisation Regulation, certain supplementary legislation has been adopted in order to ensure that the relevant competent authority – ie, the SFSA (Finansinspektionen) – has the necessary supervisory, investigatory and sanctioning powers to fulfil its duties under the Securitisation Regulation.

On 1 February 2020, the Supplementary Act to the Securitisation Regulation (Lag (2019:1215) med kompletterande bestämmelser till EU:s förordning om värdepapperisering) entered into force in Sweden. The Act gives the SFSA certain investigative and supervisory powers, and establishes interventions and sanctions for violations of the Securitisation Regulation.

As outlined in 4.1 Specific Disclosure Laws or Regulations and 4.2 General Disclosure Laws or Regulations, Swedish companies are subject to the transparency requirements of the Securitisation Regulation and to local law requirements pursuant to the Companies Act, the Accounting Act and the Annual Reports Act.

In addition, regulated entities such as financial institutions are subject to the regulatory regimen under which they operate. Such requirements can include, but are not limited to, reporting regarding capital adequacy and liquidity, and anti-money laundering.

Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies is directly applicable in Sweden. Swedish national law does not contain any other material provisions regarding rating agencies.

As Sweden is part of the EU, the Swedish legal framework is based on the single rule book for the EU.

The Swedish legal framework regarding capital adequacy and liquidity is based on the EU’s capital adequacy and liquidity regulation (CRR/CRD), and is valid for banks and other regulated financial entities (Kreditmarknadsbolag).

For insurance companies, the Swedish legal framework is based on the Solvency II Regulation.

There are no specific national laws or regulations that apply to the use of derivatives in securitisations. However, Swedish companies are subject to the applicable EU regulations and directives.

No investor protection laws or regulations apply specifically to Swedish securitisations, though the general Swedish and EU laws and regulations would come into play depending on the extent to which a Swedish securitisation is a public issuance. In addition, the Securitisation Regulation provides the following protective measures:

• due diligence requirements pursuant to Article 5;
• risk-retention requirements pursuant to Article 6; and
• transparency requirements pursuant to Article 7.

Swedish banks that securitise any of their financial assets or that invest in positions in securitisations are regulated by the Securitisation Regulation and by the applicable capital adequacy and liquidity regulation (CRR/CRD).

As outlined in 6.2 SPEs, a Swedish SPE is usually set up as a limited liability company in accordance with the Companies Act. Swedish law does not provide for any specific regulation regarding SPEs; instead, an SPE will be subject to the rules and regulations generally applicable to Swedish limited liability companies.

Pursuant to the Swedish Banking and Financing Business Act (Lag (2004:297) om bank- och finansieringsrörelse), a company must have a licence in order to carry out financing business (finansieringsrörelse) in Sweden. The term “financing business” includes any commercial operations where the purpose is to:

• accept repayable funds from the public; or
• grant loans, provide guarantees for loans or, for financing purposes, acquire claims or grant rights of use in personal property.

In an opinion issued on 18 February 2021 (Ställningstagande: Obligationsfinansierad kreditgivning), the SFSA established its view that the issuing of debt instruments, including bonds, would not be subject to the licence requirements under the Banking and Financing Business Act, unless such instruments are issued to a financial institution (as the term is used in the CRR) and the issuing company can ensure that the issued instrument cannot be transferred to a non-financial institution.

As a result of the above, for a Swedish company that is not a bank or a financial institution, it is crucial that any debt issued pursuant to a securitisation transaction not be held by or transferred to a private person or a company that is not a financial institution. Therefore, Swedish securitisation documents contain strict provisions regarding the transfer and assignment of debt, limiting such transfers and/or assignments to so-called eligible institutions.

It should be noted, however, that although an issuer can avoid being subject to the licence requirements under the Banking and Financing Business Act, in most situations it will (as outlined in 3.4 Principal Covenants) be subject to the registration requirements under the Currency Exchange and Other Financial Operations (Reporting Duty) Act (Lag (1996:1006) om valutaväxling och annan finansiell verksamhet).

No Swedish government-sponsored entities specifically target Swedish securitisations, though Swedish pension funds and other managers of public funds are occasionally seen as investors in Swedish securitisations. However, European institutions such as the European Investment Fund have been involved in Swedish securitisation transactions by providing guarantees through their credit enhancement operations in order to facilitate and enhance access to finance for SMEs.

Investors are usually:

• major national or international banks;
• asset managers such as funds and pension funds; or
• other credit institutions.

All these entities are subject to the regulatory landscape under which they operate.

No further information is available on this topic.

Swedish law does not explicitly regulate synthetic securitisations – ie, securitisations where the transfer of risk is achieved through the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originator.

However, synthetic securitisations are admissible in Sweden subject to the EU legal regime – in this case, the Securitisation Regulation and the applicable capital adequacy and liquidity regulation (CRR/CRD), which are directly applicable in Sweden.

Swedish securitisations are structured to ensure that the issuer is bankruptcy-remote from the originator and its creditors, and that the investors in the securitisations are exposed only to the assets and liabilities that form part of the securitisation. Navigating Swedish insolvency laws is central to achieving this, with key focus areas including:

• limiting the number of potential creditors of the issuer;
• avoiding any bankruptcy proceedings relating to the originator affecting the issuer or its assets; and
• ensuring that the securitised assets will not be included in the originator’s bankruptcy estate.

Assets of the Bankruptcy Estate

Under Swedish law, the bankruptcy estate shall include the property of the debtor at the time the bankruptcy order was issued, including property that may be subject to claw-back.

Transferred Assets and True Sales

Assets that have been transferred by the originator to the issuer in connection with a securitisation transaction may be included in the bankruptcy estate of the originator, unless the transfer has been duly perfected and a valid right in rem (sakrättsligt skydd) has been established. The steps required to create a perfected transfer of assets depend on the asset, but in most cases will include:

• the actual physical transfer of the asset from the transferor to the transferee; and/or
• notification to the underlying debtor in connection with, for example, the transfer of a receivable under a non-negotiable promissory note (enkelt skuldebrev).

Although Swedish law does not recognise a true sale as an independent legal concept, the Swedish Supreme Court (Högsta Domstolen) has established a number of prerequisites (as further outlined in 6.3 Transfer of Financial Assets) that ought to be satisfied in a situation where an originator transfers receivables to another company, while at the same time maintaining the role as servicer towards the debtors under the receivables, in order to avoid the reclassification of the actual sale transaction.

Claw-Back

In bankruptcy, under certain circumstances and subject to applicable time limits, transactions can be reversed. The relevant assets shall then be returned to and included in the bankruptcy estate. Broadly, these transactions include situations where:

• the debtor has conveyed property fraudulently or preferentially to one creditor to the detriment of its other creditors before the initiation of the relevant insolvency proceedings;
• the debtor has created a new security interest, or has repaid a debt that is not due or that is considerable compared to the value of the debtor’s assets; or
• the payment is made through an unusual means of payment.

In most situations, a claim for recovery can be made in respect of actions that were made during the three months preceding the commencement of the bankruptcy proceedings. In certain situations, longer time limits apply, and, in other situations, there are no time limits. These include situations where the other party in a transaction is closely related to the debtor, such as a subsidiary or a parent company.

It should be noted that, under Swedish law, a perfected sale or security interest can also be subject to claw-back in accordance with the above-mentioned rules.

A Typical SPE Structure

An SPE is usually set up for the sole purpose of the securitisation, and certain measures are taken to avoid liabilities relating to historic operations or to operations other than the securitisation. In most cases, an SPE is a newly established off-the-shelf company directly owned and controlled by the originator. Its business operations will be limited by its by-laws, which will typically contain restrictive language about the SPE’s business object.

Although a typical Swedish securitisation structure (as further outlined in 1.2 Structures Relating to Financial Assets and 1.4 Special-Purpose Entity (SPE) Jurisdiction) involves the establishment of a Swedish limited liability company directly owned by the Swedish originator, it is not uncommon for Swedish securitisations to involve an orphan SPE set up in Luxembourg or Ireland, for example, for tax and/or regulatory reasons and purposes.

Consolidation in Bankruptcy

Under Swedish law, bankruptcy proceedings are conducted on a “company-by-company” level – ie, a subsidiary will not be declared bankrupt solely by reason of its parent company’s bankruptcy, and the creditors of one company being declared bankrupt would not individually lead to there being recourse against any other company in the same group.

Under normal circumstances, the concept of “substantive consolidation” does not exist under Swedish law. Consequently, in a typical securitisation structure – if done correctly – the bankruptcy of the originator would not have a direct legal impact on the SPE’s financial situation or operations.

Exceptions

However, it should be noted that there are certain exceptions to the above general principle. For example, if the SPE and the originator are organised as a group for VAT purposes (momsgrupp), each member of the group for VAT purposes is jointly and severally liable for the principal group entity’s (huvudmannens) VAT liabilities.

Consequently, any claim for taxes directed towards the principal group entity (eg, the originator), in or outside bankruptcy, could also be directed towards any other entity within the group for VAT purposes. Although this is not a bankruptcy issue per se, the implication could be viewed as an exception to the principle that each company is independently liable for its own debt.

Furthermore, it is a well-established principle under Swedish law that a Swedish limited liability company is a separate legal entity from its owners. Thus, as a main rule, the shareholders of a limited liability company cannot be held responsible for actions carried out by a subsidiary, nor can they become liable for a subsidiary’s obligations and liabilities. However, general principles of piercing the corporate veil (ansvarsgenombrott) have been developed in case law from the Swedish Supreme Court, where shareholders have, under exceptional circumstances (disloyal purpose, under-capitalisation of the company and lack of independence), become liable for the obligations of a subsidiary.

Perfection of Transfer

Swedish law distinguishes between non-negotiable promissory notes (enkla skuldebrev) and negotiable promissory notes (löpande skuldebrev). As a general principle, both non-negotiable promissory and negotiable promissory notes (and receivables thereunder) are freely transferable by the creditor without the prior consent of the debtor, and a transfer is effective between the transferor and the transferee upon the execution of the transfer agreement.

However, while the new creditor who has acquired a negotiable promissory note will be protected against third-party claims by being in physical possession of the actual promissory note, a new creditor under a non-negotiable promissory note will obtain such protection first after the debtor has been notified of the transfer. Although there are no formal legal requirements regarding the form of such notice, it is usually made by the originator (ie, the transferor) in writing to the debtor.

True Sales

A true sale is not an independently recognised concept under Swedish law – ie, it is not regulated as a specific type of sale transaction. This means that there are no formal requirements that must be fulfilled in order for a sale to be characterised as a true sale. Instead, a court would evaluate a transaction on the characteristics of that specific transaction.

Generally, under Swedish law, the parties’ intention when entering into an agreement is an important factor when interpreting the agreement. A court would take such intention into account, but would also take into account the economic characteristics of the transaction (substance over form) when evaluating whether an intended sale of assets (a true sale) could instead be recharacterised as a security assignment. Factors that could affect such assessment include the extent to which the seller retains the following:

• any credit risk;
• the right to collect receipts on the receivables; and
• the right to repurchase the sold receivables.

Although there is some uncertainty as to how a court would characterise a sale of assets under a securitisation structure, the situation whereby an originator transfers a non-negotiable promissory note to another company but maintains the role as servicer towards the debtors has been subject to the scrutiny of the Swedish Supreme Court. The starting point under Swedish law in connection with a transfer of assets is that the physical possession and right to access and operate the assets shall pass from the transferor to the transferee, in order for the transfer to be fully perfected.

A case from the Supreme Court (NJA 1995 Section 367) established a number of prerequisites that must be fulfilled in order to create a perfected transfer and a valid right in rem (sakrättsligt skydd), where assets that have been transferred to another party continue to be serviced by the transferor. The general view of the Swedish market is that those prerequisites are as follows:

• the debtors are duly notified of the transfer;
• the notification to each debtor states that the transferor should continue to receive payments under the transferred contract for and on behalf of the transferee (and not on its own behalf) and in accordance with the transferee’s instructions; and
• the notification states that the transferee (or its agent) could at any time revoke the transferor’s servicing assignment (and the terms of the servicing assignment shall include such right of revocation).

Although these prerequisites are widely accepted and recognised in the Swedish market, it should be noted that they have been based on the facts and circumstances set out in one specific case tried by the Supreme Court, and it cannot be ruled out that a Swedish court would apply other principles in a similar but not identical case.

In addition to the above-mentioned principles and as briefly outlined in the preceding paragraphs, it is crucial that the substantial risks associated with the underlying assets are being transferred to the transferee (ie, the SPE) in order to achieve a true sale that would survive the scrutiny of a court. This means that any credit risk associated with the underlying assets must be assumed by the SPE, and that the SPE or any of its creditors would not have a recourse claim against the transferor (ie, the originator) if an underlying debtor fails to meet its payment obligations.

It should be noted that the legal treatment of a transfer of assets (whether it is characterised as a true sale or not, as further outlined in 8.1 Legal Issues With Securitisation Accounting Rules) is independent from the accounting analysis and treatment of such transaction – ie, the above-mentioned principles established by the Supreme Court do not necessarily have an impact on the accounting true sale analysis.

As outlined in 6.4 Construction of Bankruptcy-Remote Transactions, the legal counsel of the securitisation investors will usually issue one legal opinion addressing the true sale, among other things.

As outlined in 6.2 SPEs, it is a well-established principle under Swedish law that a Swedish limited liability company is a separate legal entity from its owners, and that assets of a subsidiary (the SPE) would be part of its parent company’s (the originator’s) insolvency estate – assuming that any transfer of assets between the originator and the SPE has been duly perfected and falls within the applicable boundaries for any claw-back risks, as outlined in 6.1 Insolvency Laws.

In addition, as most securitisation transactions in the Swedish market are structured in such a way that the originator will continue to service the transferred underlying assets (in most cases receivables) and collect interest and principal receipt on such assets, it is crucial that such receipts be held as escrow funds by the servicer on behalf of the issuer in order to avoid being assets of the servicer/originator in the bankruptcy of the servicer/originator. Therefore, the servicing agreement, as further outlined in 3.5 Principal Servicing Provisions, usually contains provisions addressing this issue.

Other means for achieving a bankruptcy-remote structure include:

• incorporating restrictive language in the by-laws of the SPE regarding its business objective; and
• ensuring that the SPE is not part of a group for VAT purposes (see 6.2 SPEs).

It is not market standard in Sweden to obtain separate insolvency opinions in connection with a securitisation transaction. Instead, insolvency matters will be addressed in the general legal opinion, which will normally cover:

• capacity and authority;
• validity and enforceability;
• authorisations and registrations;
• choice of law and jurisdiction;
• true sale;
• bankruptcy-remoteness; and
• tax.

In addition to that previously discussed in 6. Structurally Embedded Laws of General Application, the securitisation documentation would typically include limited recourse provisions and non-petition undertakings from all parties involved.

There is no specific transfer tax for the SPE; however, if the SPE makes a gain on its assets, this could result in profit being taxable in accordance with that set out in 7.2 Taxes on Profit.

A Swedish SPE is taxed on its taxable net profits at the corporate tax rate of 20.6%. The basis for the taxable net profits is the accounting net profits, adjusted for items that are not taxable or tax-deductible. Tax deductions for net interest expenses are generally restricted to 30% of tax-adjusted EBITDA. Practitioners typically attempt to mitigate such taxes by designing the operations, income and expenses (notably the waterfall) of the SPE such that it makes no or little accounting net profit.

There is no Swedish withholding tax on cross-border payments, nor on interest payments. Dividends (if any) paid by the SPE to a non-resident shareholder may be subject to withholding tax.

Swedish VAT may apply in respect of services performed for an SPE. Such VAT risk is normally ascribed to the servicer (ie, if VAT is applied, the service fee will decrease and the servicer will receive its fee post-deduction of VAT); however, if such risk is not acceptable to the originator as servicer, the services can sometimes be performed for no consideration in order to mitigate the risk (in which case, the funds will flow through the waterfall).

As outlined in 6.4 Construction of Bankruptcy-Remote Transactions, one opinion that addresses several issues, including tax, is obtained in connection with a Swedish securitisation transaction. The tax section of such opinion generally includes that:

• any non-Swedish SPE (as applicable) will not be taxable in Sweden;
• no stamp (or similar) taxes in respect of the transaction documents will apply;
• there will be no withholding of tax on payments made by a Swedish SPE; and
• there will be no VAT on the sale of receivables/loans or services provided to the SPE.

In general, the legal analysis and treatment of a securitisation is independent from the accounting analysis and treatment, and vice versa. Consequently, a legal true sale of the securitised asset may not necessarily entail a derecognition of assets from an accounting perspective. However, the accounting analysis and treatment are often affected by the legal treatment, meaning that a legal true sale is necessary, accounting-wise, to achieve a derecognition, though it is not necessarily sufficient to reach such conclusion.

On the contrary, the legal treatment is not affected by the accounting treatment, although the relevant transaction is often structured in a legal manner to achieve a certain accounting treatment.

A legal opinion addressing a true sale, among other things, is usually obtained in order to support a derecognition of the underlying financial assets in the originator’s balance sheet.

As previously mentioned, the accounting analysis of a transfer of assets will be separate from the legal analysis; however, in most cases a legal opinion will be necessary to achieve a derecognition from an accounting perspective.