Analysis
Lending & Secured Finance 2016
A practical cross-border insight into lending and secured finance
The Romanian chapter of the “International Comparative Legal Guide to Lending & Secured Finance” prepared by Andrei Burz-Pînzaru, Partner, and Mihaela Maxim, Senior Managing Associate at Reff & Associates, the law firm representing Deloitte Legal network, provides a comprehensive perspective upon trends and developments in this area. Here are some highlights of the publication:
1. Overview
1.1. What are the main trends/significant developments in the lending markets in your jurisdiction?
Recent developments indicate an increased legislative appetite for increasing borrowers’ protection, especially consumers, mainly due to the public attention enjoyed by consumer lawsuits initiated against banks. There are a number of controversial legislative drafts in this respect, aimed, e.g., at repealing the “writ of execution” quality of loans granted by Romanian credit and financial institutions, at allowing consumers the option to “give in” the financed real estate against the debt, etc. Personal insolvency law, which will allow individuals to suspend enforcement and write-off debt under certain circumstances, has been enacted but suspended from application until December 2016.
1.2. What are some significant lending transactions that have taken place in your jurisdiction in recent years?
The year 2015 has seen a number of significant transactions on the Romanian corporate lending market, among which we note: the EUR 1 billion revolving facility arranged by BRD Groupe Société Générale and UniCredit Bank Austria AG for OMV Petrom; the USD 137 million revolving facility granted to ALRO S.A., the largest aluminium smelter in Central and Eastern Europe, by a syndicate of local banks; as well as the three facilities amounting to EUR 75 million granted to Mid Europa Partners by a combination of Austrian and Romanian banks, mostly to finance the purchase of Regina Maria, one of the largest Romanian private healthcare providers.
The process of cleaning balance sheets of non-performing assets has been accelerated in the last year under pressure from regulators. Crediting, both corporate and retail, is somehow stagnant but expected to increase in the near future.
2. Guarantees
2.1. Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?
Yes, provided that the guarantor has a certain commercial benefit deriving from the guarantee and such operation does not qualify as a prohibited financial assistance transaction.
Unfortunately, the law does not provide specific criteria for assessing the existence of the commercial benefit; therefore, the directors of the guarantor should make this assessment in each particular case, having in mind the general financial situation of the company, the risks undertaken and the benefits obtained by the guarantor, etc. In order to substantiate the economic interest and to grant additional comfort, in practice, the borrower pays the guarantor a guarantor’s fee, established based on arm’s length principles. While this is a mitigating factor, its strengths depend on whether such guarantor’s fee is reasonably proportionate to the risk undertaken.
Please also note that the Romanian Company Law provides for several restrictions applicable to joint stock companies (Romanian, societati pe actiuni) – e.g. companies are prohibited from guaranteeing borrowings of its directors or of companies in which such directors or their immediate family members are directors or shareholders owning more than 20% of the share capital.
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