Uptier Transactions and the Principle of Equal Treatment in Swedish Bond Markets

In recent years, and especially in the wake of the uncertain global interest rate climate since late 2022, liability management techniques have gained prominence as companies seek to improve their capital structures without the restricting im-pacts of entering formal insolvency proceedings. One such method, the uptier transaction, typically involves a majority of bondholders consenting to amend existing bond terms to allow for the issuance of new debt that ranks senior to the original bonds. While beneficial to the company due to the injection of new capital, and creditors participating because of their newfound priority, such trans-actions pose significant disadvantages to the minority bondholders who do not participate. The documentation for Swedish corporate bond transactions often relies on the standard terms of the Swedish Securities Markets Association (SSMA), which include majority decision-making frameworks and general pari passu clauses. However, the documents offer limited guidance on how far majority bondhold- ers may go in altering terms to their own benefit, creating legal uncertainty, par-ticularly considering the principle of equal treatment. This thesis examines uptier transactions in light of Swedish law, and particu-larly with regard to the principle of equal treatment as set out in Chapter 18, Section 3 of the Swedish Securities Market Act (2007:528), which implements Article 18.1 of the EU Transparency Directive. The study investigates the extent to which Swedish law permits bondholder discrimination and further evaluates the enforceability and normative status of a contract based on SSMA’s standard terms, while exploring the impact of relevant market practice and certain foreign precedents, in order to assess how these transactions may ultimately be treated in Swedish insolvency proceedings. In this context, the analysis also addresses the procedural and substantive implications of consent solicitation mechanisms and other early bird incentives. The study concludes that while Chapter 18, Section 3 of the Swedish Securities Market Act (2007:528) contains a requirement for materially equal treatment and imposes meaningful regulatory and contractual limits on bond market actors, Swedish law does not expressly prohibit uptier transactions. These restrictions are especially pertinent when majority bondholders modify bond terms to prior-itize their own claims - an approach that potentially undermines the integrity and predictability of the bond market. With formal insolvency proceedings as a nat- ural endpoint, the study further argues for greater legal clarity, with possible leg- islative intervention one alternative, to ensure that the Swedish bond market re-mains both efficient and fair in addressing financial distress.