FINLAND Law and Practice Contributed by: Timo Lehtimäki, Niklas Thibblin, Essi Hietaoja and Oona Honkamaa, Waselius
ity itself by the borrower, and much more for the use of the target group assets as collateral. 3.5 Debt Buyback Debt buybacks are generally permitted under Finnish law in private credit transactions and others. 3.6 Recent Legal and Commercial Developments There have been no significant recent legal or commer - cial developments that would have required changes to the legal documentation, though the status of Finn - ish interest deductibility rules and their impact on the scope of secured obligations is slightly in flux. 3.7 Junior and Hybrid Capital In the Finnish market, the loans provided by private credit providers are typically senior-secured (with potentially a super-senior revolving credit facility pro - vided by a traditional bank on top of that). Certain specialty lenders have offered hybrid capital financ - ing, such as convertible notes, typically to distressed publicly traded companies. Junior capital is generally provided in a similar man - ner to more traditional bank led financings with junior lenders. Typically, this involves an intercreditor agree - ment, and sometimes structural subordination is used. Hybrid financing is less common and is usually struc - tured as a convertible note when used. In junior capital deals, the security package is similar to that in senior deals, but is of course subordinated either contractu - ally or structurally. In hybrid deals, the security pack - age tends to be more limited. Since major-sponsor holding companies (“HoldCos”) tend to be outside Finland, Finnish HoldCo deals are scarce to say the least. Nonetheless, HoldCo deals are typically secured, though the security package is generally more limited compared to operating compa - ny (“OpCo”) deals. For example, the security package may include a security over shares, intra-group loans
with private debt often lacking amortisation require - ments and having longer maturities. 3.9 Call Protection In recent years, the levels of call protection have gone down and make-whole provisions have become rarer. First permitted call dates usually fall around 12 months after utilisation, with the second-level call dates vary - ing between 18 and 48 months from utilisation. During the first year, a make-whole requirement is still fairly common; however, from then onwards there is typi - cally only a prepayment fee, which varies between 1% and 3% depending on the timing – and there might well be no prepayment fee after the three-year mark, for example. Generally, the Finnish market can be expected to fol - low London market trends in this regard. Based on domestic law, Finnish withholding tax is generally not levied on interest payments made on loans to non-Finnish resident lenders. The same applies to the repayment of loan principal. Owing to Finnish-sourced interest payments being largely exempt from Finnish withholding tax, very lit - tle structuring is required in customary private credit/ non-bank lending transactions in Finland. 4.2 Other Taxes, Duties, Charges or Tax Considerations 4. Tax Considerations 4.1 Withholding Tax As a rule, no other taxes, duties or charges are pay - able on the issuance or transfer of loans in Finland. Transfer Taxation If a loan qualifies as a security for Finnish transfer tax purposes, the transfer of such loan would be subject to Finnish transfer tax at a rate of 1.5%. A loan quali - fies as a security for transfer tax purposes if: • the interest payable on the loan is linked to the profits or dividends payable by the company; • the loan entitles the holder to a share of the com - pany’s annual profits or surplus; or
and bank accounts held by the HoldCo. 3.8 Payment in Kind/Amortisation
Payments in kind are a common feature in private credit. Private credit funds typically offer more flexible funding structures compared to traditional bank loans,
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