NORWAY Law and Practice Contributed by: Karoline Ulleland Hoel, Sigurd Opedal, Ole Henrik Wille and Daniel Nygaard Nyberg, Wikborg Rein Advokatfirma AS
ignated investment team and in-house legal counsel of the fund manager are involved, particularly in the initial stages of negotiation, but outside legal counsel normally leads the process. Larger deals and add-on acquisitions require the investment team to rely to a great extent on outside legal counsel. 5.3 Funding Structure of Private Equity In Norway, private equity deals are normally financed by a combination of third-party debt financing and equity, with the equity portion increasing in recent years, particularly in highly leveraged deals. The pro - portion of debt varies based on factors such as the fund’s track record, deal size and robustness, the credit risk, business sector, relationship with debt providers, and the target group’s future prospects of creating revenues, profits and debt service capacity. Generally, initial leverage rarely exceeds 40–50% in the current market. Transactions General Trends Additionally, bond issues and direct lending have become more prominent in the capital structure (either replacing bank debt or in pari passu or super-senior structures). This shift is driven by increased awareness among domestic and foreign investors of the benefits of the Norwegian bond market and the structuring of direct lending within a Norwegian legal framework. Leveraged Buyouts In leveraged buyouts, debt financing is generally pro - vided to the acquiring entity (BidCo) to finance the acquisition, and sometimes also to the target group to refinance existing debt and finance general corpo - rate or working capital requirements. Typically, debt providers will not accept co-investors or management investing directly in BidCo due to their requirement for a single point of enforcement in connection with a pledge of shares in BidCo, which is one of the reasons why there is usually a holding company above BidCo. Acquisition Debt Term loans, unitranche and bonds are commonly used to finance acquisition debt as well as refinance the target group’s existing debt. Generally, the group’s working capital and corporate financing requirements are met through working capital facilities, such as
revolving credit or overdraft facilities, which are often structured as super senior debt. Any sponsor equity financing is often structured as equity and/or subor - dinated debt. Provision of Funds A private limited company may, under certain condi - tions, provide funds, guarantees or security for acquir - ing its own shares or shares in the company’s direct or indirect parent company. Thus, both BidCo’s acquisition debt and the target group’s refinancing debt can be secured by pledging BidCo’s shares and its shares in the target, along with guarantees and security from the target group. Banks and other lenders now require fewer finan - cial covenants, though they remain more extensive in Norway than in, for example, the London market. The leverage ratio covenant is almost always required, often supplemented by either the interest cover ratio covenant, cash-flow cover ratio covenant or an equi - ty-based covenant – while the capital expenditure (capex) covenant is rare. Lenders show greater flexibility on other covenants, like acquisition restrictions and asset sales, but are still stricter than the London market. Bond issues often include incurrence covenants and the most used cov - enant in these tests is the leverage ratio covenants, but the authors are now also seeing an increasing presence of financial maintenance covenants, in the form of leverage ratio or minimum liquidity covenants. It is not uncommon for sellers to require an equity commitment letter to provide contractual certainty for the equity-funded portion of the purchase price from a private equity-backed buyer. Similarly, to avoid any financing conditions and ensure debt funding certainty, private equity funds frequently obtain debt commitment letters from underwriters on a “certain funds” basis before bidding or signing acquisition agreements. In most Norwegian private equity deals, the fund holds a majority stake. Acquiring minority stakes in listed companies has occasionally occurred in recent years, but it remains rare.
472 CHAMBERS.COM
Powered by FlippingBook