SWEDEN Law and Practice Contributed by: Magnus Wennerhorn and Victor Bengtson, Linklaters
• Capacity and authority opinions: in larger English law-governed transactions, these are issued by the borrower-side counsel to con- firm that local borrower companies have the authority to enter into financing agreements. In smaller transactions, the lender counsel also covers this in the enforceability opinion. • Enforceability opinions: these state that the financing agreement is legally binding under Swedish law or the governing law chosen by the parties. • Other opinions: there are a number of other issues that may be covered and Sweden does not stand out in terms of having any particularly unusual opinions. • Recent issues: in recent years a practice of capping the liability under legal opinions has become increasingly established by local firms. As many international lenders do not accept this, it has been an issue in several transactions, particularly when raised late in the transaction and thus causing issues. Therefore, in the future, lenders may need to turn to the international firms present in Sweden which have not applied this practice this far. Senior loans are the backbone of Swedish lev- eraged finance structures, commonly used for acquisition financing and LBOs. • Typical structure: senior loans often consist of term loans and a revolving credit facility. • Syndication: for high-value or cross-border deals, senior loans are typically syndicated among banks and financial institutions to spread any risk. For domestic mid-market 3. Structures 3.1 Senior Loans
deals, bilateral loans or club loans (just a few banks) with Nordic banks are popular. • Priority: these loans are secured and rank highest in the capital structure, benefiting from first-ranking security over borrower and guarantor assets. 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Mezzanine loans and PIK loans are generally used to fill funding gaps or increase leverage in Swedish LBOs, though these structures have become less common in recent years due to the rise of unitranche lending. Mezzanine Loans • Mezzanine loans are subordinated to senior loans but rank ahead of equity. • They are often provided by specialists or private debt funds. • Typically, they are secured by the same secu- rity as the senior debt, but rank lower in the waterfall and come with a higher interest rate to reflect increased risk. PIK Loans • A mechanism where interest payments are capitalised (rather than being made in cash) to reduce immediate cash-flow constraints on borrowers. • PIK loans are only used in large, complex multi-layered funding structures. • One type of PIK loan, which may fall within the scope of fund finance (financing PE funds), is the equity loan, which is provided at a level above the LBO financing and which does not rely on the same security, but instead is covered by guarantees from the PE funds. Only in a very few situations have PIK loans in Swedish law structures lacked guar- antor cover from the PE fund. These types of loans are typically used to increase leverage,
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