FINLAND Law and Practice Contributed by: Timo Lehtimäki, Niklas Thibblin, Essi Hietaoja and Oona Honkamaa, Waselius
1. Private Credit Overview 1.1 Private Credit Market
1.4 Challenges There have not been any significant regulatory obsta - cles or challenges to the expansion of the private credit market in Finland. However, many private credit funds lending into Finland still face the situation of performing their first deal in Finland, which necessi - tates a quick learning curve regarding (for example) structuring issues, the types of security available, enforcement proceedings and similar aspects. 1.5 Sponsored/Non-Sponsored Debt The primary focus of private credit providers has been on private equity sponsors and their portfolio compa - nies, though in some cases private credit providers also extend capital to founder-owned or closely held companies. Public companies are only rarely targeted by private credit providers. 1.6 Recurring Revenue Deals and Late-Stage Lending There is not currently a large recurring revenue mar - ket in Finland; therefore, private credit providers are not yet active in the Finnish markets, apart from for general enquiries. 1.7 Deal Sizes, Fund Sizes and Fundraising Typically, private credit transactions in Finland range from EUR10 million to EUR100 million, though for larger private credit deals the deal size can go beyond EUR100 million. Finnish funds that are titled private credit funds are predominantly funds of funds invest - ing into much larger, actual private credit funds, and there is no representative fundraising market for Finn - ish actual private credit funds. 1.8 Impending Regulation and Reform Finnish regulators are currently not focused on private credit lenders, and there are no pending proposals for regulation beyond the upcoming implementation of CRD VI, which is not expected to materially affect pri - vate credit lenders. However, given the rapid growth of the private credit market, regulators might take a greater interest in this sector in the future (though any regulation will most likely come from the EU level).
The shift in the global loan market from traditional bank lending towards private credit has affected the popularity of private credit in the Finnish market as well, and more and more credit funds are also target - ing Finland. Economic conditions and uncertainty, as well as the tightening capital and regulatory restric - tions on traditional banks, have made way for the rapid expansion of direct lenders in recent years, and have led to an increase in the availability of private credit compared to bank financing. In addition, the increased regulatory requirements have led to banks becoming more risk-averse. Bank lending may again become more attractive to borrow - ers due to the falling interest rates; it is, however, still likely that the demand for private credit will continue to grow. 1.2 Interaction With Public Markets Competition between banks and private credit funds has increased, with the private credit market gaining more and more market share – in particular in acqui - sition finance but also in asset-based lending trans - actions. However, banks have played a key role in the growth of the private credit market by providing financing to private credit funds and their investors. Additionally, an increasing number of banks are part - nering with asset managers to enter the private credit market through various business models. Despite this, banks remain the most prominent lend - ers in the Finnish market. Also, certain Finnish banks have stepped up and are offering super-senior revolv - ing credit facilities to private credit borrowers – which entails that the private credit documentation (in par - ticular, the facility agreement and the intercreditor agreement) need to be drafted to accommodate this. 1.3 Acquisition Finance Private credit funds have been significant lenders in Europe and in Finland in the last 12 months, and the preferred lender in sponsor-backed acquisition financ - ings, in particular.
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