Nordic Corporate Bonds - What Happens Next

• Published date: 14 January 2021
• Subject Matter: Finance and Banking, Coronavirus (COVID-19), Debt Capital Markets, Financial Services, Financing
• Law Firm: Baker McKenzie
• Author: Mr Mats Rooth and Markus Meuller

Over the last decade, the Nordic bond market has experienced significant growth in terms of volume and number of issuers and has become a viable alternative for issuers across substantially all industry sectors (not only the real estate sector) and varying credit profiles seeking debt financing. At the end of 2019 the total outstanding amount of the Nordic bond market was EUR 1,1122bn, of which EUR 102 billion consisted of corporate bonds (i.e. excluding FIG and public sector issuers) after approximately 9% of growth over the preceding year. The markets in Sweden and Norway are by far the larger among the Nordic countries, although Finland and Denmark have seen increased activity as well. Marketing is conducted primarily within the Nordic markets, although depending on the transaction it is fairly common that investors in other jurisdictions are approached as well.

The Nordic bond market has tracked the exponential growth of debt securities offerings outside the US generally following last decade's financial crisis, supported by the lending restraints imposed on traditional banks, demand for instruments that offer some yield in the low interest rate environment, the shorter average execution timelines, less management involvement required, lower advisory costs and more developed options for restructuring a credit if it becomes distressed. Still, many international banks have yet to participate as placement agents or underwriters for Nordic bonds, citing concerns over liability, reputational risk and adherence to stricter disclosure standards. This, in turn, has given some local players an opportunity to develop the market further.

Nordic Market vs. Traditional Reg S/144A Marke

The Nordic bond market originally developed locally, with standards, as will be described below, that deviate from those traditionally associated with Regulation S (outside the US) or Rule 144A (inside the US to sophisticated investors) offerings, in particular with respect to the scope of disclosure and concerns over potential liability under US securities laws. While the market is still substantially limited to Nordic issuers, as a more robust international investor base develops, these considerations continue to be revisited.

The following chart sets out certain material differences between the process and structure of a Nordic corporate bond issue and a Reg S/144A offering:

Nordic bonds	Reg S / 144A
Public Credit Rating	Not required. While some issuers have a public rating from one or more credit rating agencies, particularly in the investment grade segment, most issuers are not rated and bonds typically do not have individual ratings.	Required. Although not strictly required by law, investors rely on corporate and/or instrument ratings in making their investment decisions and the market standard is to provide at least two ratings. Credit ratings may also be triggers for covenants being suspended (upon achievement of investment grade status) or a requirement for a change of control.
Due Diligence	Limited diligence conducted. Often handled only by way of a due diligence questionnaire that the issuer fills out and a diligence bring down call conducted prior to launch. Unless a particular issue comes to light based on responses received from the company that would prompt further review, the investment bank and its counsel would typically not request relevant documentation or otherwise conduct an independent review of any materials.	In-depth due diligence conducted. Full legal, documentary and financial due diligence of the last three financial years and interim period conducted in order to protect underwriters against potential liability (see below). Due diligence will generally include a full review of material legal documentation, several due diligence and drafting sessions and bring down calls. In a "significant" acquisition or carve-out financing transaction, the scope of due diligence will also include the target.
Comfort letter	Not required.	Required. AU Section 634 (SAS 72) comfort letter and accompanying circle-up required, as well as auditor due diligence call.
Offering Documentation	Lighter and consists primarily of a term sheet, a company description, risk factors and financial information. As the marketing of Nordic bonds is typically limited to institutions and other accredited investors there is no requirement for a formal prospectus or other approvals prior to the issuance.	Extensive disclosure included in the Offering Memorandum. Although not strictly required in Reg S/144A offerings, market practice is...