The liquidity of businesses and enterprises are being affected by the outbreak of the Covid-19-disease and measures implemented to combat it.
Updated 20 November 2020
Legislation to mitigate effects of the Covid-19-disease on liquidity has been passed by the Norwegian Parliament and entered into force:
(A) Loans to enterprises backed by guarantees provided by the Norwegian state, and
(B) Re-establishment of the Norwegian state bond fund.
(A) State guaranteed loans to enterprises
The focus of this guarantee scheme is enterprises’ access to financing through financing institutions, with a total guarantee limit of 50 BNOK.
The guarantee scheme has been subject to various amendments since entering into force. These are the most important changes in October/November 2020:
- The guarantee applies to loans granted up to (and including) 30 June 2021.
- Guaranteed loans can have a term of up to 6 years from disbursement.
- Guaranteed loans can be refinanced.
- GIEK can consent to a restructuring agreement where guaranteed loans are included.
Which companies can apply for state guaranteed loans?
This guarantee scheme was previously reserved for small and medium-sized enterprises (“SMEs”), but has been amended to also include larger enterprises (though on slightly different terms). A company qualifies as medium-sized if it i) employs less than 250 employees, and ii) has an annual turnover of no more than 50 MEUR or a balance sheet total of no more than 43 MEUR. Small enterprises are defined as companies which i) employ less than 50 employees, and ii) har an annual turnover or balance sheet total of no more than 10 MEUR.
This is calculated on a consolidated basis using a foreign exchange rate of 9,8511 NOK per EUR.
Further, the following main requirements must be satisfied for a company to qualify:
1. The company must have a right or duty to register in the Norwegian Register of Business Enterprises (Nw. Foretaksregisteret)
2. Must suffer from an acute liquidity shortfall
This shortfall must be a result of the Covid-19-outbreak. This requirement is satisfied if the financing institution considers it probable that i) the company (at a consolidated level) would otherwise not have had access to loans from financing institutions to cover expenses and investments necessary in order to secure further operations during the term of the loan, and ii) the main reason for the liquidity shortage is directly or indirectly linked to the Covid-19-outbreak.
Note that the preparatory works do not consider dividend distributions compatible with an acute liquidity shortage, and companies are expected to refrain from dividend distributions to the extent possible.
3. 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 generally not be eligible. This is further regulated in the regulation. Requirements are stricter for larger enterprises, while SMEs (and especially SMEs which have existed for less than three years) are subject to more relaxed requirements. Furthermore, small enterprises will not be excluded from the scheme as long as they are not subject to bankruptcy proceedings (or are insolvent) or have received rescue or restructuring aid in accordance with ESA’s guidelines on this dated 10 September 2014.
What is the maximum loan amount and what are applicable terms?
1. Maximum amount
The total loan amount for each company cannot exceed the following limits:
(i) two times the company’s labour costs in 2019 (if the company was established on 1 January 2019 or later the loan cannot amount to more than the company’s estimated labour costs for the two first operating years) 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 for SMEs and 150 MNOK for larger enterprises.
This must be calculated on a consolidated basis. Should the company receive several guaranteed loans, the limits will apply to the aggregate loan amount.
2. 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. It can be both a term loan or a revolving credit facility, and repayment under the term loan can be deferred up to 12 months. The financing institution must be able to document that the advantage of the guarantee has been passed on to the lender in the form of reduced interest rates (etc.).
The loan term cannot extend past six years. Upon a request by the financing institution, GIEK may extend this, if the financing institution (prior to the expiration of the guarantee) finds reason to commence loss-reducing measures in relation to the borrower. This extension is contingent upon it being in the interest of the state.
4.The purpose of the loan (no refinancing or repayment of existing debt)
The purpose of the loan must be to cover operating expenses (this includes repayment of existing debt where instalments are due and payable) or the financing of investments (which are necessary in order to secure continued operations throughout the term of the loan). The loan cannot be used for the prepayment or downward adjustment of existing debt (or any other way which entails the transfer of the financing institution’s existing credit risk to the state).
This does not prohibit the refinancing of guaranteed loans, provided that the loan amount and securities remain unaltered. The refinanced loan must be repaid in its entirety by the financing institution refinancing the loan.
5. Guarantee premium
The company must pay the state a guarantee premium for the portion of the loan which is guaranteed under the scheme. The level depends on i) whether the company is an SME or a larger enterprise, and ii) the term of the loan.
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 (to GIEK) 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 contact their bank and prepare documents required for the bank’s assessment. 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 has my company’s bank received?
146 financing institutions received a share of the guarantee scheme’s total value. The size of each share has since been revised a number of times, and the current allocation is publicly available. Financing institutions with their home state in another EEA-state with an EU passport for financial services extending to Norway may also apply for a share of the guarantee scheme’s total value.
How are losses divided under the guarantee scheme?
Losses will be divided pro rata between the financing intuitions and the state, where the state will cover 90% per loan. For this, the financing institution pays a guarantee fee to the state. The guarantee does not cover interest due but unpaid for a period exceeding 90 days or interest accrued after the borrower is declared bankrupt (or reconstruction or debt settlement negotiations are opened). In any event, the state’s guarantee liability is limited to each financing institution’s share of the guarantee scheme.
In the event of a restructuring of the borrower, GIEK must approve this. Hereunder it must be considered to be in the state’s interest and the restructuring must be on market terms. If the restructuring results in a write-off of the loan amount, GIEK will cover 90% pro rata of the financing institution’s loss.
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 30 June 2021.
The relationship to the EU state aid rules
The guarantee scheme qualifies as state aid and has been approved by ESA (the EFTA Surveillance Authority).
(B) Norwegian state bond fund
The Norwegian state bond fund has been 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 is performed by Folketrygdfondet, in accordance with framework established by legislators and the Finance Ministry. The framework is 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 must be done in accordance with a separate investment mandate established by the Finance Ministry:
1. Instruments and markets
The fund may invest in tradeable bonds and other tradeable debt instruments and cash deposits, limited to:
(i) Tradeable bonds and other tradeable debt instruments issued by Norwegian companies.
(ii) Cash deposits, when necessary for efficient portfolio management.
(ii) Financial derivatives and currency instruments when inherently linked to the investments in the portfolio.
Investments may be made both in the primary and secondary market.
2. Market terms
Investments made by the fund shall be on market terms, and shall, in the primary market, be made alongside other investors. Note that in a currently very volatile market, market terms could prove challenging to determine.
3. Sector allocation
Investments in the credit bond market shall be placed as follows: (i) Non-financial companies: 50-100%, (ii) Banks and financial institutions: 0-50%.
The fund may invest in bonds denominated in other currencies than NOK, but such investments are limited to EUR, GBP, SEK, DKK and USD. These must be hedged.
5. Credit assessment
For all bond investments, a credit assessment must be performed. If external credit assessments are not available, Folketrygfondet must perform their own credit assessment. The following limits apply by reference to Standard & Poor’s credit ratings:
(i) Up to 50% of the fund may be invested in bonds issued by companies with a rating of BB+ or lower (below “investment grade”).
(ii) The fund cannot invest in bonds issued by companies with a rating of CCC or lower.
(iii) If a company is downgraded to CCC or lower after an investment has been made by the fund, these investments may still be included in the portfolio.
6. Singe issuer
Up to 5% of the fund capital may be invested in bonds issued by a single issuer.