Trustee for all of Norway

Posted May 30, 2011

You can't leave just anyone to manage deals worth NOK 749 billion. Icelanders have realised this too.

By Birger Baug

Few people know it, but no-one in Norway is more trusted than managing director of Norsk Tillitsmann, Ragnar Sjoner. At least in terms of money. Bondholders far and near have placed their values in the hands of Sjoner and his colleagues. And hope that they will sort things out as well as possible if anything should go wrong.

Large Norwegian insurance companies and credit institutions aren’t just among these owners, they were also involved in the start-up together with Sjoner in 1993. The specific background was the banking crisis at the end of the 80s. It gave everyone the feeling that something had to be done.

"What exactly is Norsk Tillitsmann, Ragnar Sjoner?"

"Our activities are based on long Norwegian traditions. The concept of having a joint representative for owners has been around since the bond market started developing. What’s different about us is that it was the large investors who wanted an independent, active trustee after the banking crisis. With this, the trustee function was lifted out of the regular financial institutions, and came to us instead. Banks were initially sceptical – we were taking over one of their functions, after all – but they did come to see the importance of independence, and joined as owners from 1995. I suppose you could say that banks just about outsourced this part of their activities to us."

Against special interests

"Why on earth should I use Norsk Tillitsmann to manage my bonds?"

"Because we have considerable experience. We have been through a great number of difficult cases, not least during the height of the financial crisis. We think along lines that benefit all bond owners, and are completely dependent on the trust between them and us. When things get tough, it’s about securing as much as possible for as many people as possible. This means there are clear benefits in having one trustee to relate to. It gives everyone a common denominator."

Sjoner also stresses that by using a trustee, the costs of following up securities are shared between all the owners. Footing the costs alone can be expensive.

"We keep the bondowners together, we monitor the loan throughout the term and verify that the requirements of loan agreements are complied with. In this way, we also ensure that specific investors do not have special advantages. In some cases, it may be the case that an owner may benefit from an issuer running aground, because it gives access to cheap assets. Through the trustee scheme, we ensure that decisions are made by the group, and avoid bondowners with special interests having too much of a say."

"Is there ever any grumbling among the bondowners?"

"We see a lot of that, especially in risk-exposed loans. There is always a multitude of ideas about what’s best for the owners. We don’t want to force a solution on anyone, we are there to coordinate solutions. Often there’s a majority and a minority. When a loan has few owners, sometimes it seems like the biggest owners are acting obstinately, and our challenge is then to safeguard the interests of the minority bondowners as well. Equal treatment is very important to us, and for the most part, we attain this goal."

Kværner was the first big test

"What percentage of the capital of NOK 749 billion has required significant restructuring?"

"This is difficult to measure, as the portfolio is under continuous development. But we have probably handled more than a hundred significant cases. This number includes some enforcements and winding-up proceedings, some bankruptcies and a certain amount of restructuring. A lot of it is related to the financial crisis."

"What are the benefits of restructuring over winding up?"

"It varies from case to case, and is maybe best explained using an example. In the Kværner case at the beginning of the 2000s, a professional player conducted an analysis of what the winding up dividend would be, and concluded with a one-digit percentage. Through the restructuring, which became the solution, some interest did have to be written down, but all the lenders got their principal amount back. Kværner was really the first very big test of our role as trustee. All parties benefited from the restructuring which we ended up doing, we took an active part in the process and one of the things we ensured was valid resolutions among bondowners."

Chaos threatened

One of the great benefits of having a trustee is that the trustee can represent the bondowners should a case be taken to court. It’s only a couple of years since this role was threatened, as both the district court and the court of appeal determined that Norsk Tillitsmann did not have the necessary "right of action" on behalf of the bond owners. Many people in Norwegian financial circles held their breath, and the usually calm and sober-minded Sjoner went so far as to announce publicly that “chaos” threatened. The Ministry of Finance agreed with this statement, and had a new private bill ready should the Supreme Court decide to follow up their colleagues further down in the legal system.

"Some people say you got the Ministry to prepare a new private bill in record time?"

"Well … First I’d like to praise the Ministry of Finance and the Financial Supervisory Authority of Norway, who clearly and quickly saw the significance of our role for financial stability in Norway. The bureaucracy worked impressively purposefully on the case. Even international investors noticed, which helped make Norway attractive as a bond market. As far as we are concerned, we didn’t do anything other than tell the authorities what it would mean if the Supreme Court arrived at the same conclusion. In addition, we informed them of the financial situation otherwise, and some members of parliament raised the issue with the Minister of Finance. I suppose the point is that very few people wanted Norway to end up in such a situation. A hearing was also conducted in connection with the new law, and barely anyone was having second thoughts. But luckily, an amendment was never necessary."

An Icelandic shock

"But none of our neighbouring countries has such a trustee scheme?”

"That’s correct. We do however receive enquiries from the other Nordic countries all the time, who in light of the financial crisis want an independent trustee scheme in their countries too. We are often in dialogue with players from e.g. Sweden."

Not to mention Iceland. Ragnar Sjoner was recently a bit shocked when holding a lecture on the saga island.

"The organiser and we ourselves were prepared for 10-12 people; instead we ended up with 80 or 90. Those in attendance had very qualified questions. It is obvious that many Icelanders have learned a lot over the past few years."

Strong development

"What will the main focus be for Norsk Tillitsmann in the time ahead?"

"The Norwegian high-interest market is unique and strong. We will handle all parts of this market, and be part of dynamic developments in it. Another feature is that the financial crisis means both legislation and financial institutions will pose new and stronger requirements as regards liquidity. This will necessarily mean that a greater proportion of capital will be obtained through bonds. For this reason, we believe in a greater depth and breadth in the market, and that this type of loan will become even more competitive than before. It is a development that will mean a lot to us. In addition, we will probably see other Nordic countries starting to offer services like ours."

"If you were to highlight something you’re especially proud of achieving these past 18 years, what would it be?"

"We trustees are naturally a bit modest, and the way we talk reflects this. But I suppose you could say we’re pretty pleased with the way we’ve come through the financial crisis..."

"What’s it like to manage NOK 749 billion in 1740 loans?"

"Ha-ha. What can I say? It feels like a big responsibility. And sometimes demanding. But to be honest, we don’t think a lot about the total amount. Our job is to manage individual cases, and each party’s rights."

"So you don’t lie awake at night?"