Norway offers a sophisticated framework for acquisition financing, catering to both domestic and international investors. This article provides an in-depth exploration of the key aspects of acquisition finance in Norway, including common methods, financing sources, security arrangements, and legal considerations.
1. Acquisition Methods and Financing Sources
The primary methods for acquiring businesses in Norway are:
1. Share acquisitions
2. Asset acquisitions
3. Mergers
Share acquisitions are often preferred due to the tax exemption for capital gains on shares, making them particularly attractive for investors.
Financing for these acquisitions typically comes from:
1. Bank loans (most common)
2. Financial institutions
3. Equity contributions
4. Subordinated vendor notes
5. High-yield bond market
Bank loan agreements in Norway are usually based on Loan Market Association standards, adapted to comply with Norwegian law. These agreements are typically drafted in English but are generally less extensive than their English law counterparts.
The Norwegian high-yield bond market is active, particularly in the real estate sector. Nordic Trustee AS acts as trustee for most Norwegian bond issues, using standardized templates that are considered market standard. Modifications to these templates are usually limited to incorporating specific commercial terms agreed upon in term sheets.
2. Security Agents and Legal Standing
In syndicated bank loans, security agents are commonly used to hold security on behalf of secured parties. Banks and financial institutions often serve dual roles as both transaction parties and security agents.
For bond issues, the trustee typically acts as the security agent. It's important to note that while security agents in syndicated deals generally lack standing before Norwegian courts, there's an exception for trustees in the bond market. The Norwegian Supreme Court has ruled that trustees have the capacity to represent bondholders in court.
3. Security Assets and the Principle of Legality
The Norwegian Pledge Act of 1980 establishes the principle of legality, requiring pledges to have a legal basis to be valid. Additionally, there are specific statutory requirements for creating valid pledges, including:
1. Maximum amount for secured claims: Most pledges, with some exceptions like unregistered shares and certain monetary claims, must have a capped secured amount. It's customary to set this at 120-130% of the secured obligations.
2. Disposal limitations: Any restrictions on asset disposal also apply to establishing pledges.
3. Floating charge limitations: With some exceptions (e.g., inventory, operating assets, trade receivables), creating pledges over a company's current and future assets is generally not permitted.
While not legally required, pledges are typically established through separate pledge agreements rather than within the loan agreement itself. Perfection requirements for Norwegian law-governed pledges are explicitly stated in the Norwegian Pledge Act and vary depending on the asset type.
4. Types of Security Assets
4.1 Shares
Share pledges are the most common form of security in acquisition finance. Perfection requirements differ based on whether the shares are:
a) In a private limited liability company not registered in the Norwegian Central Securities Depository (CSD)
b) In a private or public limited liability company registered in the Norwegian CSD
For unregistered private companies, perfection is achieved by notifying the company, which must then record the pledge in its shareholder register. For public companies and CSD-registered private companies, perfection is done through registration in the Norwegian CSD.
4.2 Financial Instruments
Other financial instruments registered in the Norwegian CSD can be pledged, with perfection achieved through CSD registration. Deposits in CSD investor accounts can be pledged as floating charges.
4.3 Bank Accounts
Bank account pledges are common for cash deposits. They're perfected by notifying the account bank. While the pledgor is typically restricted from making withdrawals, parties can agree on alternative arrangements.
4.4 Inventory and Operating Assets
Companies registered in the Norwegian Register of Business Enterprises can create floating charges over inventory and operating assets. These pledges must cover all assets or clearly identified portions. Perfection is achieved by registering a standardized Norwegian form with the Norwegian Register of Movable Property.
4.5 Intellectual Property
Specific patents, patent applications, and licenses can be individually pledged, perfected by registration with the Norwegian Patent Office.
4.6 Receivables
Security over receivables can be established through floating charges over existing and future trade receivables or pledges of specific claims. Floating charges are perfected by registration, while specific claim pledges require debtor notification.
4.7 Real Estate
Real estate pledges cover land and permanent structures. They're perfected by registering a standardized Norwegian form with the Norwegian Land Registry.
5. Enforcement
The Norwegian Enforcement Act of 1992 governs security enforcement. Generally, parties can't agree to enforcement methods outside those prescribed by the Act before a default occurs. However, exceptions exist for certain asset types like bank accounts and receivables.
Financial collateral agreements, governed by the Norwegian Financial Collateral Act of 2004, allow for pre-agreed enforcement methods. This Act implements the EU Financial Collateral Arrangement Directive and provides flexibility in enforcement for qualifying agreements.
6. Guarantees
Guarantees are widely used in Norwegian transactions, primarily as sureties or on-demand guarantees. No formal requirements exist for providing guarantees, and there are no general limitations on guaranteed amounts, provided there's sufficient corporate benefit.
The Norwegian Financial Agreement Act of 1999 regulates financial service agreements involving financial institutions, including certain guarantees. This Act includes provisions to protect guarantors, though these are often waived in commercial agreements.
7. Financial Assistance
Norwegian law imposes strict limitations on companies providing financial assistance for share acquisitions. As a general rule, such assistance is only permitted within dividend distribution limits. Recent legislative changes have introduced exceptions, particularly for intra-group transactions and acquisitions by EEA-domiciled entities resulting in group formations.
These rules apply to both private and public limited liability companies and cover loans and security provisions. The limitations aim to protect company capital and creditors' interests.
Conclusion
The Norwegian acquisition finance landscape offers a robust framework for domestic and international investors. While it presents unique challenges, particularly in terms of security creation and financial assistance rules, recent legislative developments have increased flexibility. Understanding these nuances is crucial for structuring successful acquisition financing in Norway.