A bank loan or credit facility allows for more flexibility in connection with the form and purpose of financing. For instance, it can:
- incorporate a revolving mechanism;
- accommodate the issue of standby letters of credit or bank guarantees within the framework of the loan or credit facility;
- provide for invoice or negotiable instruments discounting or other factoring arrangements; and
- accommodate short-term working capital needs:
- in parallel with medium-term or long-term financing needs that may be required for capital expenditure; or
- in the context of project finance or asset finance transactions.
Where the financing requires more detailed and ongoing monitoring provisions (due to the purpose of the financing or the financial condition of the borrower), banks that are active in the Greek market are more likely to assume the administrative cost and risk of that monitoring.
Loan or credit facilities granted by banks operating in Greece (whether local banks or foreign banks operating in Greece through a permanent establishment or on a cross-border basis in accordance with European Union (EU) passport provisions) are exempt from stamp duty and are also exempt from withholding tax on interest.
Greek law does not recognise the notion of a trust as far as security over assets located in Greece is concerned. Parallel debt language can be used in syndicated loan facilities, in order for the security interests to be held by the security agent as agent and trustee and also as a joint and several creditor with the other secured lenders. However, parallel debt language only has a contractual effect as between the parties and, therefore, in case of insolvency of the security agent, the other lenders are not protected in connection with the security interests held in the name of the security agent or cash collected by the security agent.
Bank loan and credit facilities are subject to a special levy (at the rate of 0.6 per cent per annum on the facility amount outstanding from time to time), which is (as a matter of standard Greek market practice) borne by the borrower, by way of a percentage over and above the applicable interest rate.
Mortgages, non-possessory pledges and floating charges over assets located in Greece require registration, which is subject to an ad valorem registration duty at the rate of 0.775 per cent on the secured amount.
The stamp duty exemption mentioned above only benefits those lenders that are banks licensed to operate in Greece (ie, Greek banks, EU banks providing banking services on cross-border bases or through permanent establishments, and non-EU banks providing banking services through permanent establishments); therefore, where non-bank lenders participate in a bank loan facility, there may be a need for the facility structure to accommodate fronting banks and funded participation arrangements.
From the borrowers’ perspective, bank loan and credit facilities include more detailed ongoing financial and other covenants and more restrictive provisions than listed debt securities not necessarily intended to only attract bank lenders or other regulated lenders.
Under Greek law (articles 59 et seq. of Law 4548/2018, with effect from 1 January and, previously, Law 3156/2003), a ‘bond loan’ is a loan represented by bonds (similar to a German Schuldschein); therefore, bonds issued under a Greek bond loan are debt securities, which can be subscribed by private placement or through a public offering (subject to the provisions applicable to public offerings of securities).
Any security for a bond loan must be created in the name of the bondholders’ agent for the benefit of the bondholders and, as a matter of Greek law, any such security and any cash collections do not form part of the bondholders’ agent insolvency estate. Therefore, as a matter of Greek banking practice, where the borrower is a Greek société anonyme (SA), a bond loan facility structure can be used to address the security structure disadvantage of bank loan facilities (see above).
Furthermore, a bond loan structure has further advantages in terms of substantial mitigation of mandatory costs (article 14 of Law 3156/2003, which continues to apply to bond loans). In particular, a bond loan benefits from:
- a full stamp duty exemption, independently of whether the investors are banks or non-banks (as opposed to what applies to a standard bank loan facility, see above);
- a levy exemption (see above), provided that the bonds are not listed on any market or exchange, or are listed on the Athens Exchange; and
- in respect of security interests subject to registration, a minimal fixed registration duty of €100 per registration applies (as opposed to the ad valorem registration duty payable in respect of security for standard bank loan financing - see above).
Although the legislative intention underlying Law 3156/2003 and Law 4548/2018 was primarily intended to advance the Greek capital market, the vast majority of bond loans are subscribed by private placement, with the holders of bonds being in most cases banks and in some cases other investors as well (such as hedge funds, foreign pension funds or affiliates of the issuer). As a matter of Greek market practice, following the enactment of Law 3156/2003, most term loan facilities to Greek corporates have been structured as bond loans, due to the cost and structural advantages of a bond loan facility as compared to a standard term loan facility; many bond loan structures of this type have so far involved both foreign and domestic lenders. This continues also after the entry into force of Law 4548/2018.
Apart from Greek bond loans, large Greek corporates wishing to attract international non-bank investors may issue debt securities listed on foreign exchanges or debt markets. Primarily due to marketability considerations, these debt securities are normally issued by an English subsidiary company of the Greek corporate, so are governed by English law and are guaranteed by the parent Greek corporate.
Interest payments by a Greek obligor under debt securities (whether foreign debt securities or bonds under Greek law bond loans) are subject to Greek withholding tax, at the rate provided for in any applicable double taxation treaty or (in the absence of a double taxation treaty) at the rate applicable from time to time under the Greek tax legislation. This disadvantage can be addressed through appropriate gross-up provisions.
As Greek law and market practice now stands, non-listed bonds under a Greek law bond loan facility are issued in material form. Advances to the issuer must be made against issue and physical delivery of the bonds to the investors (whether directly or, where a bondholders’ agent has been appointed, through that agent) and, in order for the investors to exercise their claims under the bonds, they must present their bonds to the issuer (or, where a bondholders’ agent has been appointed, to that agent).
In case of a transfer of bonds, perfection of the transfer requires physical delivery of the bonds and, where the bonds are registered, registration of the transfer in the register maintained by the issuer (or, where an agent has been appointed, the agent). This may be problematic for practical reasons where any revolving mechanism for the financing would result in excessive administrative cost and risks due to a need to often deliver and present bonds.
Interest payments to investors that are tax resident in Greece or acting through a permanent establishment in Greece are subject to Greek withholding tax (currently at the rate of 15 per cent). Interest payments to investors that are tax resident outside Greece and without permanent establishments in Greece are subject to Greek withholding tax at the rate provided for in the applicable double taxation treaty between Greece and the jurisdiction of tax residence of the investor (subject to provision by the investor to the Greek obligor (on any appointed agent) of a tax residence certificate) and, in the absence of a double taxation treaty, at the rate applicable at the relevant time under Greek law for interest payments on debt securities.
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