In 2022 Schoenherr advised on two green bonds for financing renewable energy projects in Bulgaria with foreign lenders structured as alternative investment funds who may not extend classic loans but may invest in corporate bonds. Apart from being a suitable alternative to lenders who do not hold a banking licence, these bonds represented a legal novelty in two respects.
Bonds drafting is cheaper compared to classic LMA credit agreements
First, they were documented under Bulgarian law agreements that were purportedly the first to fully follow the LMA model Subscription Agreement for use in pan-European private placements (LMA model). There are many domestic bonds formalities that need to be reflected, but they do not change the LMA model's business logic, as its main commercial terms may still be incorporated by adopting a slightly different structure and wording.
Furthermore, following the LMA model under Italian (rather than English) law in some respects is useful as it reflects more precisely some Bulgarian legal concepts, similar to concepts in Italy, which if overlooked could prejudice the parties' commercial goals. Ultimately, such an approach makes it possible to document bonds under Bulgarian law in a legally and financially sophisticated manner familiar to foreign lenders. Moreover, since drafting a Bulgarian bond is much simpler than drafting a Bulgarian credit agreement when both follow LMA models, the approach is less expensive for borrowers, who normally pay all legal costs.
Materialised bonds are cheaper and easier to put in place than dematerialised bonds
Second, although the prevailing market practice in Bulgaria is to issue dematerialised bonds even in cases of private placements, these bonds were again ostensibly the first in paper (materialised) form. Certain domestic corporate registry formalities, which are regarded as easier to complete when having dematerialised bonds, were smoothly passed through in this paper bond scenario. Ultimately, this was a time- and cost-effective approach, eliminating the expenses and procedures required for issuing and maintaining dematerialised bonds with the Central Depository.
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