NORWAY Law and Practice Contributed by: Ida Marie Windrup, Kristine Hjertenæs, Markus Nilssen and Daniel Jovanovic, BAHR
3.2 Mezzanine/Payment-in-Kind (PIK) Loans While mezzanine loans may also form part of a broader acquisition financing in Norway, these are less common due to the very strict licensing requirements for providing financial services to the typical “mezzaniners” . When included, how- ever, they will typically be granted as junior debt sharing in the security package of the senior loans, but ranking behind them. On the other hand, payment-in-kind (PIK) loans are more common, although they are typically seen in the form of vendor notes or various forms of seller credit instruments. 3.3 Bridge Loans In the Norwegian market, it is very common for bridge loans to be used as a short-term financ- ing solution for the purpose of covering immedi- ate capital requirements, either through bank or private credit, until a more permanent financing arrangement can be secured. In other words, the bridge loan will typically be a short-term back-up pending the stable and committed funding source, which is later refi- nanced into a new instrument, which may be in the form of a larger syndicated bank loan, private credit or bonds. With the increased risk, the term is typically short, and the interest rates are on the higher end compared to long-term financ- ing options. Leveraged financings in Norway will typically be small enough for bank lenders to be able to par- ticipate and take the whole initial amounts with- out a further syndication process, thus reducing the need for bridge loans for that purpose alone. However, there is an increasing trend to utilise bridge loans in combination with high-yield
bonds as the source for acquisition financ- ing. For bond financing, the lack of certainty of funds is a key issue, and so-called bridge-to- bond solutions with such short-term financing in anticipation of a fully committed bond issue, are very common. 3.4 Bonds/High-Yield Bonds While bank lending remains the main source of debt capital for Norwegian acquisition financing, any shortfall thereof may be covered by tapping into Norway’s high-yield bond marked. The Nor- dic bond market is very active, and there is an increasing trend to utilise Norwegian high-yield bonds as a source for acquisition financing, both domestically and abroad. However, as described in 3.3 Bridge Loans , the lack of certainty of funds is a reasonable cause for concern, mak- ing bonds less suitable for acquisition financ- ings, which concern may be mitigated through the bridge-to-bond solution described above. In addition, certain market participants are con- sidering, and some have even begun offering, an underwriting of the bond commitments. This solution, if continued, will make the Norwegian high-yield bond market more competitive com- pared to traditional bank financing, in particular in acquisition financing. 3.5 Private Placements/Loan Notes Private placements and loan notes are usually not a typical feature in the Norwegian market, except for smaller placements having been car- ried out for financing of real estate companies. 3.6 Asset-Based Financing Asset-based financing, in terms of which funds available to be drawn by the borrower are based on and limited to an agreed percentage of the value of the borrower’s secured assets (the bor- rowing base), is not a very common feature
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