24 March 2020
Legislation to mitigate effects of the Covid-19-disease on liquidity were passed by the Norwegian Parliament on 21 and 24 March:
(A) Loans to small and medium-sized enterprises (“SMEs”) backed by guarantees provided by the Norwegian state, and
(B) Re-establishment of the Norwegian state bond fund.
(A) State guaranteed loans to small and medium-sized enterprises
The focus of this guarantee scheme is small and medium-sized enterprises’ access to financing through financing institutions, with a total guarantee limit of 50 BNOK (subject to extension if necessary).
Which companies can apply for state guaranteed loans?
There are four main requirements which must be satisfied for a company to qualify:
- The company must be a small or medium-sized enterprise
This definition will be provided by the Ministry but is likely to be aligned with EU’s definition; companies with less than 250 employees, and an annual turnover of no more than 50 MEUR or a balance sheet total of no more than 43 MEUR.
- The company must operate in Norway
- Acute liquidity shortfall
This shortfall must be a result of the Covid-19-outbreak. The preparatory works do not consider divided distributions compatible with an acute liquidity shortage, and companies are expected to refrain from dividend distributions to the extent possible.
- Normally a profitable company
The company must be deemed profitable under normal circumstances. If the company was in financial difficulties as of 31 December 2019 it will not be eligible.
These requirements will be further clarified by the Ministry in a regulation to the act.
What is the maximum loan amount and what are applicable terms?
- Maximum amount
The total loan amount for each company cannot exceed the following limits:
(i) two times the company’s labour costs in 2019 or 25% of the company’s annual turnover in 2019 (there are certain exceptions to this limit),
(ii) The loan cannot, in any event, exceed 50 MNOK.
Should the company receive several guaranteed loans, the limits will apply to the aggregate loan amount.
- Market terms
To the extent possible, the loan must be on conditions which a corresponding loan would have been granted to a corresponding borrower in a normal market situation.
The loan term is not more than three years.
- No refinancing or repayment of existing debt
According to preparatory works, guaranteed loans cannot be applied towards the prepayment of existing debt or refinancing. Further restrictions could be imposed.
- Further regulations
The act provides the Ministry with wide-reaching authority to further regulate the guarantee scheme. In addition to further restrictions, the authority may also be used to ease requirements and extend the guarantee scheme to other loans.
Is it the bank that decides whether my company is eligible for a guaranteed loan?
Yes. Financing institutions will consider whether requirements have been satisfied in each case. Upon the occurrence of an event of default, the financing institution will need to apply for payment under the guarantee and must then prove that the requirements have been satisfied. As such, it is the financing institution which bears the risk that the loan qualifies under the guarantee scheme. This may reduce willingness among banks to grant loans to businesses in difficulties.
What must my company do in order to receive a guaranteed loan?
We recommend that companies, which believe they are eligible for a guaranteed loan, to commence preparations as soon as possible. The bank will require information about current operations, updated financial information, and other material deemed necessary for an analysis of the company’s liquidity needs and financial sustainability of future operations. Preparing this as soon as possible will facilitate expedient processing by the bank.
What share of the guarantee scheme will my company’s bank be eligible for?
A bank’s share of the guarantee scheme’s total value will depend upon their market share in the SMB-market (loans to companies within the commercial property market will not be included). This will be further regulated by the Ministry.
Losses will be divided pro rata between the financing intuitions and the state, where the state will cover 90% per loan.
In what timespan can guaranteed loans be issued?
The state guarantee will be applicable to loans which are approved in the timespan between the act entering into force and until 1 June 2020. This may be extended by the Ministry.
My company does not satisfy the requirements – is it still possible to apply?
The current requirements will be clarified by the Ministry, and they also have the authority to expand the definition of companies which qualify. Changes to companies encompassed may therefore occur.
The relationship to the EU state aid rules
The guarantee scheme qualifies as state aid and therefore requires approval from ESA (the EFTA Surveillance Authority).
(B) Norwegian state bond fund
The Norwegian state bond fund is re-established with an amount of up to 50 BNOK. The focus is the Norwegian market and all business sectors, and it will only be able to invest in bonds issued by companies domiciled in Norway.
Managed by Folketrygdfondet
The operative management of the fund will be performed by Folketrygdfondet, in accordance with framework established by legislators and the Finance Ministry. The framework will be based on the framework established in 2009 in connection with the financial crisis, but with necessary adjustments.
The investment mandate
The management of the fund will be done in accordance with a separate investment mandate provided by the Finance Ministry. This has not yet been determined, but will encompass the following:
1. Market terms
Investments made by the fund shall be on market terms and made alongside other investors. Note that in a currently very volatile market, this could prove challenging to determine.
2. Sector allocation and diversification
Limits will be imposed on the fund’s investments per business sector, in order to ensure risk diversification. Limits could also be imposed on the fund’s investments per issuer, in addition to requirements concerning credit rating of the issuer.
3. Considerable investments in non-financial companies
In addition to investing in financial companies, a considerable amount of the fund should be invested in non-financial companies.
4. Considerable investments in high yield bonds
The mandate will provide the fund with the possibility of investing in a considerable amount of high yield bonds.
5. Second-hand market and other debt instruments
The fund will be allowed to invest in both the primary and the second-hand market, and it will also be allowed to invest in other debt instruments.
SANDS’ banking & finance department is paying close attention to further relevant updates, and will provide updated information and relevant articles on a running basis.