1 The Norwegian Bond Market and the Nordic Trustee
The Norwegian bond market was booming for almost a decade until the oil price started plunging in 2014.(1) Oslo Stock Exchange, ‘Brent Oil’ <www.oslobors.no/markedsaktivitet/#/details/C:PBROUSDBR%5CSP.IDCENE/overview> accessed 24 April 2017 During this decade, the market appeared to have an endless supply of funds readily available to be invested in the high-yield oil and offshore services industry.(2) The number of all bond issues, not only high yield, listed on the Oslo Stock Exchange or Nordic ABM rose from 926 in 2006 to 1875 in 2014, see Oslo Stock Exchange, ‘Den rekordhøye aktiviteten fortsetter i obligasjonsmarkedet’ (6 March 2017) <www.oslobors.no/Oslo-Boers/Om-Oslo-Boers/Nyheter-fra-Oslo-Boers/Den-rekordhoeye-aktiviteten-fortsetter-i-obligasjonsmarkedet> accessed 16 March 2017. In addition, there is a substantial number of bond issues in the Norwegian high-yield market which are not listed or listed on foreign exchanges. The issuers, for their part, did not mind the high interest demanded. Due to its lenient requirements on documentation, the Norwegian market was especially attractive. An investor would simply flip through a short investor presentation and term sheet before subscribing to the bond issue. The Nordic Trustee(3) Previously named “Norsk Tillitsmann”. as bond trustee took care of the rest and functioned as the only point of contact between the bondholders and the issuer. Currently, the Nordic Trustee acts in connection with 2,300 bond issues(4) Including certificate loans. by approximately 500 issuers, with an underlying face value exceeding NOK 1,200 billion.(5) Nordic Trustee, ‘Company Information’ <nordictrustee.com/company-information> accessed 16 May 2017
The time when the bond trustee was simply a connector in a bond issue is history, since the bond trustee has come to play a crucial role in any commercial bond issue, especially within the high-yield market. Nowadays, the bond trustee ensures the effective and co-ordinated administration and enforcements of bonds. Through the no‑action clause contained in the Nordic Trustee’s standard bond terms(6) See clause 3.2 (a) of the Nordic Trustee’s standard bond terms (NBT_All Nordic_final_March 2016) available at Nordic Trustee, ‘Documents’,<nordictrustee.com/documents> accessed 16 March 2017, the bondholders waive their right of direct action against the issuer. Concurrently, the Nordic Trustee is conferred with powers to take any legal or enforcement action against the issuer on the bondholders’ behalf.(7) Refer to the Norwegian alternative of cl. 16.1 (a) of the Nordic Trustee’s standard bond terms (n 6)
However, the Nordic Trustee is merely a representative of the bondholders. In principle, a representative does not have title to sue or be sued in its own name under Norwegian law. Nonetheless, it is particularly inconvenient for the bondholders to sue the issuer individually, and it is equally inconvenient for an issuer or a third party to sue all the bondholders. There is also the question of whether the Nordic Trustee can be sued in respect of its actions performed in its capacity as bond trustee on behalf of the bondholders.
The bond trustee is a foreign concept adopted from the Anglo-Saxon markets. When adopting foreign legal concepts, unexpected issues may arise when put to the test. That is what happened when the Nordic Trustee sought to enforce the rights of the bondholders through the Norwegian judicial system by relying on the no-action clause. Similarly, a party wishing to sue (i) the Nordic Trustee in respect of its actions performed as bond trustee on behalf of the bondholders, or (ii) the bondholders in the name of the Nordic Trustee, may face both legal and practical obstacles.(8) Note that this article does not discuss legal actions against the bond trustee itself for breach of its contractual or fiduciary duties owed towards the issuer or the class of bondholders. The focus of the article is on acts performed by the Nordic Trustee on the bondholders’ behalf.
This article aims to discuss the implications of conferring the Nordic Trustee with a right to sue and be sued in its own name. First, this article outlines the contractual framework – including its origin – governing the relationship between the Nordic Trustee, the bondholders and the issuer. The article then proceeds by explaining the main rule when it comes to legal actions brought by a representative under Norwegian law. Further, it assesses the Nordic Trustee’s right to sue in its own name as established in recent case law and the practical implications following such rulings. Some guidance is then sought by comparing bond trustees in the UK and the US. The article advances by discussing whether (i) the Nordic Trustee can be sued in its own name in respect of actions performed on behalf of the bondholders, and (ii) the bondholders can be sued in the name of the Nordic Trustee. Finally, this article concludes that the Nordic Trustee’s right to sue and be sued in its own name should be subject to legal review and codification, and perhaps even a modest reform.