SWEDEN: An Introduction to Capital Markets: Debt

The Current State of the Swedish Debt Capital Markets

General market updates

In 2023, Sweden’s domestic debt capital market experienced a notable increase in new issuances, totalling SEK107 billion – a 16.8% increase compared to 2022. This growth occurred despite a challenging environment marked by high interest rates and inflation. However, this level of market activity did not approach the record of SEK180 billion set in 2021 in the wake of the strong economic recovery post COVID-19. Notably, the total outstanding volume in the Swedish corporate bond market in 2023 (SEK478 billion) declined 5% compared to 2022.

The real estate sector maintained its dominant position in the Swedish market, despite facing a decline in 2023. A significant decline was observed in the investment grade real estate new issuance volume, which decreased from 53% of the total new volume in 2022 to 33% in 2023. This decline may be attributed to rating downgrades stemming from the financial difficulties currently confronting the Swedish real estate sector. Additionally, the Swedish corporate bond market saw a significant increase in first-time default rates, which rose by of 6.8% in 2023 with the real estate sector being the primary contributor.

The issuance of green bonds continued to gain traction in 2023, with increasing volumes. The total outstanding volume has surged by 153% since 2019 and green bonds now represent 24% of the market share of the Nordic corporate bond market.

Self-regulation in the Swedish bond market

The Swedish bond market has experienced substantial growth over the past decade, outpacing the legislators. As a result, market participants, supported by relevant regulators, have developed their own market standards and resorted to self-regulation. Central to these efforts is the Swedish Securities Markets Association (SSMA), which has created standard agreements and recommendations. While not legally binding, these standards are widely used by bond market participants and therefore often regarded as “good market practice”.

Recent efforts by SSMA and other market participants have largely focused on enhancing market transparency. For instance, SSMA has issued recommendations regarding reporting of executed bond trades by investment firms. In 2022, SSMA also published an updated version of the standard terms and conditions template, a key tool for harmonisation of the Swedish high yield bond market.

The EU Taxonomy and local implementation

Despite the trend toward self-regulation, certain aspects of the Swedish bond market are subject to formal regulation. One such area is the EU Taxonomy. In January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force and was implemented in Swedish law on 1 July 2024, inter alia through amendments in the Annual Reports Act. In accordance with the CSRD, companies that have issued debt instruments (transferable securities) admitted to trading on a regulated market must include sustainability information in their management reports if the company fulfils more than one of the following conditions:

• the average number of employees in the company has in each of the last two financial years amounted to more than ten;
• the company’s reported balance sheet has for each of the last two financial years amounted to more than SEK5 million; and
• the company’s reported net turnover has for each of the last two financial years amounted to more than SEK10 million.

Furthermore, on an EU level, regulation on European Green Bonds applies from 21 December 2024. The regulation sets out harmonised requirements for bond issuers wishing to use the European Green Bond (EuGB) label. This regulation introduces a voluntary standard for bonds with environmentally sustainable objectives, aiming to prevent greenwashing. A proposed new law would grant the Swedish Financial Supervisory Authority investigative and supervisory powers, including sanctions for violations of this regulation, with the law expected to take effect on the same date.

Nasdaq Transfer Market – retail bond listings

In 2022, Nasdaq Stockholm launched Nasdaq Transfer Market (NTM), a multilateral trading facility (MTF) designed to facilitate timely and temporary listings of bonds, provided such bonds are scheduled for listing on a regulated market in an EU member state within 12 months of issuance.

Previously, retail bonds (ie, bonds with a denomination lower than the equivalence of EUR100,000) were ineligible for listing on NTM due to the requirement that bonds must have a minimum denomination equivalent to EUR100,000. However, as of 1 January 2024, Nasdaq Stockholm has, in an effort to create better conditions for retail bond issuances, changed the eligibility criteria for NTM. Bonds with a lower denomination than the equivalence of EUR100,000 may now be listed on NTM, provided the minimum investment in the primary offering corresponded to at least EUR100,000. This change is expected to encourage retail bond issuances in Sweden and increase the number of listings on NTM.

Restructurings and amend-and-extend transactions

The current market environment and increase in default rates driven by interest spikes and high inflation, has resulted in a significant increase in restructuring and amend-and-extend transactions over the past year. The real estate sector has been particularly affected, with several issuers facing varying degrees of financial distress and restructuring need, but other sectors have been strained as well.

While high-yield issuers continue to be the most common restructuring debtors, the previous year has seen an increase in restructuring activities among investment grade issuers as well, with companies such as Viaplay, SBB and Intrum being notable examples. This trend has attracted increased interest from large international investors in Swedish restructuring cases, leading to heightened demand for legal advice on both existing holdings and new investment opportunities.

Voluntary out-of-court restructurings remain the norm in the Swedish market, with debtors and creditors negotiating everything from amend-and-extend transactions to more complex debt-to-equity swaps, write-downs and elevations out of court. However, the new Swedish Company Restructuring Act has been utilised in several cases, with Yrkesakademin being the most prominent. Given the more restrictive consent thresholds typically found in Swedish MTN programmes, it is anticipated formal proceedings will become more common in the future.

Conclusion

In 2023, new debt capital market issues grew by 16.8%, despite high interest rates, though the total outstanding volume declined by 5%. The real estate sector, while still dominant, saw significant declines, particularly in investment-grade issuances. Green bonds continued to rise, now representing 24% of the market. The market relies heavily on self-regulation, with SSMA leading transparency efforts. New EU regulations, including the CSRD and European Green Bonds regulation, are impacting local practices. The market also saw an increase in restructurings, particularly within the real estate sector, driven by economic pressures.