Category: Bulgaria

Boyanov & Co has advised Agent J.P. Morgan and Security Agent Wilmington Trust on the accession of Alvogen’s Bulgarian subsidiary Alvogen Pharma Trading Europe as an additional guarantor to two loan agreements totaling more than EUR 2 billion. CMS Bulgaria advised Alvogen and its subsidiary. White & Case reportedly advised the agent and security agent. Kirkland & Ellis reportedly advised the borrowers.

According to Boyanov & Co, Alvogen Pharma Trading Europe is part of the Alvogen group, a global privately owned pharmaceutical company focused on developing, manufacturing, and selling generic, brand, over-the-counter, and biosimilar products for patients around the world. 

Boyanov & Co’s team was led by Partner Damian Simeonov and included Senior Associate Ralitsa Nedkova.

The CMS team was led by Partner Elitsa Ivanova and Associate Konstantin Stoyanov.

On June 23, 2021, CEE Legal Matters reported that DGKV had advised Internet Corporated Networks on the sale of its hosting and domain business to Superhosting.bg. CEE In-House Matters spoke with Julian Borislavov, CEO and Co-Founder of ICN to learn more about the deal.

CEEIHM: To begin with, tell us a bit about ICN.

Julian: ICN was started back in 2004. After coming back from the US I started a few digital projects, and I become frustrated with low-quality hosting services. I decided to give it a shot. My brother and partner is the nerd behind ICN. He was 16 back then. After a couple of years, we become the best local hosting provider according to PC World magazine. After fast growth, we became the second biggest hosting provider in Bulgaria. For almost 17 years we were fanatics when it comes to providing the best customer experience and support, high-quality hosting, and cloud services. In April 2021 the European group Team.Blue acquired our assets and merged them with its previous acquisition from 2020.

CEEIHM: Your company recently sold its hosting and domain business to Superhosting.bg. In your opinion, what made your business attractive to the buyer?

Julian: During the past few years, we were constantly approached by many big players. Team.Blue Hosting Group acquired our main competitor Superhosting.Bg in 2020. Meanwhile, we were in negotiations with another acquirer who was attracted by our professional knowledge, in-house products, and first-class customer service. Later in 2020, we had a chance to meet with TB and gain a deeper understanding of their vision in developing the local markets in the Balkans. Then we stepped in.

CEEIHM: How will your company invest the proceeds from the sale?

Julian: During the years we created a couple of other businesses we will follow them carefully the next months to see which has the larger protentional to grow. Meanwhile, we become Investors in a couple of startup venture local funds.

CEEIHM: What was DGKV’s mandate on the deal?

Julian: DGKV took on the legal support of the deal from the very beginning. They were active on all phases of the deal and completed the transaction as smoothly as possible.

CEEIHM: Why did you choose DGKV as your advisor?

Julian: We choose DGKV because of their professional skills as a team. We carried out some research on the early stages of the transaction and we got many recommendations for them.

Bulgaria’s accession to NATO in 2004 challenged the country’s army to modernize its armaments and replace obsolete military equipment. This is a multi-stage process, based on a series of political decisions and a consistent implementation of a long-term strategy. Bulgaria must catch up with the other CEE members of the Alliance, which have already completed or are in an advanced stage of modernizing their armies and are already in the capacity-building process. What Bulgaria is planning, how that plan is being executed, and what opportunities we should look forward to in the near future are critical considerations.

In February 2021, the National Assembly adopted the Program for Developing the Defense Capabilities of the Armed Forces of the Republic of Bulgaria 2032 (or Program 2032), a critical long-term strategic document defining the development framework of Bulgaria’s defense policy. Program 2032 envisions the acquisition of defense capabilities to occur in two stages: from 2021 to 2026 and from 2027 to 2032. Consistent with that, a Draft Plan for the Development of the Armed Forces until 2026 (Plan 2026) has been developed as the main medium-term strategic document of the Armed Forces, organizing and ensuring the implementation of the first stage of Program 2032. It is to be adopted by a future Council of Ministers.

According to Program 2032, the complete modernization of the Bulgarian army will cost about EUR 15 billion and will involve the development of 180 new defense capabilities. Therefore, it is envisaged that defense expenditures will increase up to 2% of Bulgaria’s GDP by 2024, and they are required to remain at least at that level for the period after that, depending on the growth of the country’s economic opportunities.

This increase in defense expenditures has already begun with the signing of two major contracts: an approximately EUR 1 billion acquisition of eight F-16 Block 70 multi-role fighters from Lockheed Martin in 2019, and an approximately EUR 500 million acquisition of two patrol ships from German shipyard Fr. Lurssen Werft GMBH & CO.KG in 2020. In December 2020, another contract for over EUR 40 million was signed with Bulgaria’s state-owned company TEREM for the modernization of 44 tanks, including the modernization of other equipment necessary to increase the overall combat capabilities of the tanks. However, as TEREM facilities cannot carry out the main modernization activities, a significant part of the funds might be redirected to another company.

A significant project that has been on the agenda for almost ten years is the acquisition of 150 armored vehicles for the ground forces, which is worth about EUR 750 million, and which is currently at a deadlock due to the dissonance between the set budget and the two competing offers. That is why the Ministry of Defense commissioned TEREM to prepare a report on the possibility for the machines to be built within Bulgaria’s military-industrial complex. Based on the report, the next Bulgarian government will have to decide whether to increase the project budget or assign it to a Bulgarian company.

Among the priority projects envisioned in Plan 2026 are the acquisitions of 3D radars for near and far surveillance: five radars for long-range detection and two for short-range detection, all at a combined cost of between EUR 150-200 million. The hope is that the radars can be supplied by 2023-2024, as they complement the capabilities of the new F-16 Block-70 fighters, which are expected to be in service in the next couple of years.

Other priority projects in Plan 2026 include the acquisition of submarines, the modernization of the E-71 frigates, and the development of the full operational capacity of the Command for Communication and Information Support and Cyber-Defense, as well as the acquisition of remotely controlled systems, including the acquisition of a strategic and operational command and control system.

The modernization of the Bulgarian Armed Forces has triggered an unprecedented wave of large-scale public projects in the past couple of years. The goals declared in Program 2032 suggest the formation of a sustainable trend, envisioning many more such projects in the pipeline, as long as defense and security continue to be a top priority for future governments.

By Dimitrinka Metodieva, Senior Partner, Gugushev & Partners 

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

A year ago, Bulgaria took its first steps into a new world after several months of almost total lockdown following the outbreak of the COVID-19 pandemic.

It seemed for a while that life had stopped and that Mother Nature was on the verge of reclaiming territory she had lost in the thousands of years of human evolution. In these first months of the pandemic, lawyers around the world turned to old case-law books and reviewed existing contracts to find ways for business to continue. Memories of the almost decade-long consequences of the 2008 financial crisis only increased anxiety about the potential fallout of COVID-19.

But within a short time, the pandemic started to feel familiar, at least to the legal world, where previous experience with similar crises led to the development of mechanisms to help regulate contractual relations such as force majeure and frustration-of-contract. Like most EU countries, Bulgarian law defines both concepts, so it is not mandatory for a party to have explicitly provided for either force majeure or frustration-of-contract in the agreement for these concepts to apply if necessary.

It soon became clear that the COVID-19 pandemic and the temporary lockdown measures constituted force majeure in only a limited number of cases and for a limited time. Therefore, most lawyers and webinars (very popular in the first months of the pandemic) focused on the doctrine of frustration.

This doctrine was much discussed and reviewed in Germany following the hyperinflation that the country experienced in 1923. But as time passed and the world economy started to function again, it became evident that even this doctrine might not apply. For example, in November 1923, the price of a loaf of bread in Germany, which had cost only 250 marks in January 1923, had risen to 200,000 million, and workers were often paid twice per day because prices rose so fast their wages were virtually worthless by lunchtime. Luckily, we did not see such drastic changes in Bulgaria in 2021, either in prices or in most of our daily activities.

The negative effects of the COVID-19 lockdown measures were felt mostly by the owners and landlords of businesses in shopping malls, office buildings, hotels, and restaurants. However, since most of these owners and tenants are professionals, they realized that it is better to renegotiate and settle their contractual relations between themselves rather than go to court and see how judges will apply the 100-year-old doctrine of frustration. As a result, for now, at least, no major negative effects are visible in these sectors, compared to the gloomy aftermath of the financial crisis a decade ago. Still, it is early days, and the situation may change as the crisis unfolds.

Another surprising effect of the crisis is the continuous rise in residential property prices. Statistical data for the largest Bulgarian cities shows that, after a brief period of stagnation in the first quarter of 2020, prices not only continued to rise but the pace of development of new residential projects by the end of the year had reached the levels of 2019, which was already the best year in the past decade. Office development took a big hit, however, and it is still too early to predict when this market will return to pre-pandemic levels.

By Dimitar Vlaevsky, Head of Real Estate Bulgaria, Schoenherr 

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The July 17, 2021 deadline for implementing Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019, on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency, and discharge of debt, and amending Directive (EU) 2017/1132 is quickly approaching, leaving little time for EU Member States to adjust their national legislations to its requirements.

Against this background, the Bulgarian Ministry of Justice recently proposed amendments to the Bulgarian Commercial Act, supposedly to partially transpose Directive (EU) 2019/1023. Although the proposed amendments provide for some substantial changes in the insolvency regime, they can hardly be seen as a transposition of the Directive.

With regard to the insolvency process, the amendments would make parts of the process quicker and more efficient with minimum opportunities for debtors to undermine actions. Some of the positive developments worth noting include: (i) the criteria for opening insolvency are made more clear by elucidating the definition of over-indebtedness; (ii) the risk of forum shopping by the debtor is minimized with the introduction of the requirement that the competent insolvency court be the one at the registered address of the debtor six months prior to filling; (iii) sale through direct negotiations between the insolvency administrator and the buyer is no longer an option; (iv) sale through electronic public auction is introduced, which is expected to ensure transparency of the sale process; and (v) amendments to creditors’ rankings in the distribution removes certain privilege attributed to creditors who imposed interim measures. In other areas, such as preferential claims and claims for voidance of certain transactions, there is still room for legislative improvement, but hopefully, those provisions will be clarified once the bill enters the Parliament for approval.

From a purely restructuring perspective, however, the bill does not provide for any material developments, omitting from its scope important topics of the Directive such as the cross-class cram-down, the protection of new and interim financing, and the content of the restructuring plan. The stabilization proceeding as an early restructuring tool was initially introduced in Bulgaria’s Commercial Act in 2016 but since its entry into force very few stabilization proceedings have been opened (there was only one in 2018, only five in 2019, and only two in 2020). This is a clear indication of the inefficacity of this preventive procedure and the need for its improvement. In most cases, the proceeding does not develop beyond the opening phase because the debtor turns out to be already insolvent, and some cases are terminated due to a lack of good faith or active involvement of the applicant. One of the drawbacks of the current regulation that is likely to discourage debtors from using this option is the appointment of a trusted person (the equivalent of a practitioner in the field of restructuring under the Directive) and his powers. As per the Commercial Act, the appointment of this trusted person is mandatory in all cases. Moreover, in the resolution to open stabilization proceedings the court may order restrictive measures, which may include entering into a transaction that is subject to the preliminary consent of the trusted person. However, the debtor is entitled to appeal neither the appointment of the trusted person, nor the restrictive measures. This legislative decision contradicts some of the main goals of the Directive, among which is maintaining the total or at least partial control of the debtor over its business and the appointment of a practitioner in the field of restructuring only on a case-by-case basis.

It remains to be seen whether Bulgaria will manage to meet the timeframe for transposing the Restructuring Directive, although, given the ongoing political turmoil in the country, it seems increasingly unlikely. What is undebatable, however, is that the current legal framework of both the insolvency and the stabilization proceedings need to be revised to put in place an effective mechanism for the restructuring of company debts.

By Gergina Kyoseva, Partner, Kyoseva Yakimova Dimitrova Attorneys at Law

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Looking at the past 18 months, as economies across CEE contracted, the technology, media, and telecom sector has been surging. A balancing factor for economies, it helped avoid a deeper recession. For CEE law firms, TMT’s solid performance brought in a steady amount of work, helping polish what might otherwise have been a lackluster year.

Bulgaria is no exception to this pattern, as lawyers from some of the country’s top firms broadly concur. “In general terms, M&A in 2020 and the first half of 2021 were affected by a Covid slowdown,” said Nikolay Zisov, Partner at Boyanov & Co, with some transactions carried over from 2019 and many others “either delayed or outrightly abandoned.” Despite being slower in some sectors, M&A work has overall been stable, according to Ilko Stoyanov, Partner at Schoenherr, thanks to an increase on telecommunications and TMT in general performing well. This sentiment was echoed by Veronika Hadjieva, Partner at Kambourov & Partners: “With key deals taking place in all three sub-sectors – technology, media, telecoms – arguably the TMT sector has been the most active one deal-wise.” The sector has been “quite active in terms of M&A for the last three to four years”, Hristo Nihrizov, Partner at Dimitrov, Petrov & Co, pointed out, “with big transactions yearly, such as United Group acquiring Vivacom (2020) and then the Nova Broadcasting Group (2021).”

With business and life in general becoming more digital, Diana Dimova, Partner at Kinstellar, explained that “TMT has been the hottest sector in CEE, with more than a 50% rise in volume year on year. We have seen quite a lot of transactions. The pandemic has accelerated the development of technology companies, with the digitalization of some sectors and the expansion of e-commerce.” Violetta Kunze, Partner at Djingov, Gouginski, Kyutchukov & Velichkov, outlined three reasons for the technology, media, and telecom sector’s ascendancy: “The pandemic played a role. Then there were the milestone transactions of mobile players and media operators. But there was also a large number of transactions over the last 18 months – of strong technology and software companies and startups.”

Overall, “the TMT sector was the biggest winner, with an intense, sustained M&A activity,” Zisov also said. “TMT was already an appealing sector in pre-pandemic times,” noted Hadjieva, “with value-adding targets such as market-leading telecoms, top media groups, and innovative startups.” This, she explained, created “the perfect environment for M&A activity, through which companies could reinforce their market position and diversify. Subsequently, when the pandemic hit, as opposed to other sectors that were deeply disrupted, TMT, and in particular the technology sub-sector, thrived.”

A League of Its Own

There are key differences between the technology industry and its brethren in TMT: whereas Bulgaria is following global and regional trends on media and telecoms – vertical and horizontal integration, transnational capital, the emergence of three or four key players to dominate a market – the country is carving a path of its own making in tech.

“While past transactions would mean US or EU investment into Bulgaria, the more recent deals saw local startups beginning to go overseas,” said Kunze of recent developments and highlighted: “This is a good metric for the development of the tech sector, for how the local industry is growing. There are also local angel investors and there is local venture capital available to support tech-oriented companies from Bulgaria.”

There is a consensus that the COVID-19 pandemic has supercharged the technology industry. “Companies everywhere were faced with a pressing need for technology solutions to help them cope with, and adapt to, social distancing and the remote way of doing business,” noted Veronika Hadjieva. “This spurred deal activity in the [industry], as a way to foster growth and meet demand, especially in areas such e-commerce, food delivery, telehealth, IT security, SaaS.”

While past media and telecom transactions have relied on market share and infrastructure, “on the technology and startup side, it is harder to say what made them click” Violetta Kunze said, adding: “They are unique, either in the technologies they are developing, or the skillsets they employ. Financial technology was a common denominator for many of these recent transactions. Broadly, I would say they represented a good investment, offering the opportunity to expand globally or the prospect of a profitable exit.”

As to which technology startups attracted attention and why, Diana Dimova said: “Acquisition targets were usually well-marketed companies that made a good business impression and knew how to attract attention. They had good business models, were managed by capable people. Some were rather large, with 1000 employees and over. Overall, it is a sum of vision, proven business model and presentation,” adding that the deals usually made sense from a vertical integration standpoint.

Speaking about recent acquisitions, as part of the larger trend of “digitalization of news and consumption”, Ilko Stoyanov pointed out that the companies were targeted because of the products they had developed: “Unlike most past IT transactions, which revolved around developer teams, the buyer was primarily interested in the product, a unique technology that they wanted to release worldwide. Being able to expand the business model is also a plus.” He concluded that the “Bulgarian market is now mature enough to provide world-class solutions.”

Banks are becoming more active investors, especially in fintech, noted Hristo Nihrizov: “they are also running startup development programs and investing in tech companies.” This development is closely entwined with another focus of the technology industry, cybersecurity: “we expect that this topic will become even more relevant this year, and in the years to come,” said Nikolay Zisov. “Many local businesses invested in cybersecurity solutions, processes, internal policy improvements, and training.”

It Takes an Ecosystem

What gradually emerged through discussions about the technology industry in Bulgaria, is the idea of a stable ecosystem that connects companies and professionals to capital and an extensive support network, able to provide know-how and guidance for future development.

“This is one of the best-paid sectors of the economy, and wages are going up,” noted Stoyanov, adding: “Stability is actually incentivizing professionals to go out and start their own companies. The entrepreneurial trend is developing, and startup incorporation is not slowing down. In this more mature market, we see a lot of startup activity, and venture capital is gaining speed. There are virtually no entry barriers, and the only limitation is the insufficient supply of developers.”

Nihrizov confirmed there are several active, local venture capital funds that are providing support for the development of startups. And this is not necessarily a new development, either. Neveq, the first alternative management fund under Bulgarian legislation was “groundbreaking at the time of its launch in 2007”.

“Bulgaria is a very good destination for IT businesses, with a talented and educated workforce” Dimova noted. “The EU legal and regulatory framework currently adopted in Bulgaria is also a facilitator.” Technology companies and startups have managed to attract the attention of international strategic and private equity investors, as well as local venture capital funds, like Neveq, BlackPeak, Eleven, LauncHub, and Empower. She explained they offer funding for startups and have “helped a lot of companies in the early development stages. They have also managed some quite successful exits.” She described the Bulgarian technology startup ecosystem as led by young entrepreneurs, adding: “Apart from the VC funds, we have BASSCOM, an association of IT companies, as well as angel investors (including founders who have made a successful exit) who are all helping to develop and support the ecosystem.” Dimova attributed the technology industry’s rise in its GDP contribution, as well as the growing number of professionals returning to Bulgaria (as salaries are attractive and rising), to this ecosystem and its young entrepreneurs.

About the handful of Bulgarian funds supporting the tech sector, using a mix of private capital, state funds, and EU money, Kunze said: “They bring extra resources to support the local economy and rely on experts with a proven track record, with good business and market knowledge.” The ecosystem helps nurture innovation and technology and, when all is said and done, is a deal generator. “As a result, smart ideas are becoming an increasingly popular Bulgarian export,” she concluded.

Speaking about the structures now in place to support technology startup growth, Stoyanov mentioned the Bulgarian Private Equity and Venture Capital Association and the funds themselves. As a network, they are able to provide different tiers of funding, “from very, very early grants of USD 50.000, through several-hundred-thousand seed investments, up into million-dollar investments and beyond.” He added that “the ecosystem is also able to provide coaching and support – not just for technical skills, but for entrepreneurial ones as well.”

It is also worth mentioning that the law firms themselves form an active part of this support ecosystem. Advising on transactions is an important, but rather late step in their process. The first, frequently pro bono, steps variously include initial advice on how to set up a company, startup mentorship, partnering with incubators, accelerators, or innovation programs, and offering advice on projects, policy, regulatory aspects, or licensing procedures. “Supporting tech clients is quite an adventure,” Zisov concluded on the matter.

According to Stoyanov, while Bulgaria can still be regarded as marginal in many fields, that is no longer the case in the technology industry. While most conferences can be a bit boring, “DigitalK, an annual digital innovation event in Sofia, is world-class.” He concluded by saying: “The keys to a successful tech startup are vision and confidence. The market is easy to enter at this point, as there is freedom in building your own company.”

Striking a similar tone, Nihrizov advised: “The technology sector, while important for Bulgaria, is still comparatively small in global terms. One avenue for growth would be the Israeli model – invent, produce, and export it.”

No End in Sight

Speaking to trends and his expectations for the future, Nihrizov said: “the market is still open for business, more transactions are coming.”

“There is a lot of growth potential in the technology sector,” according to Zisov. He singled out banks, the digital transformation of which brings renewed interest in developing or acquiring financial technology projects. “Plenty of investors are showing an interest, especially in fintech projects. With new developments on the remote/hybrid regime of work, Software as a Service is also an attractive market. With other sectors seeing less growth and technology having a positive outlook, there is a lot of capital out there looking for good, interesting technology projects.”

Hadjieva also said she expects the positive dynamic to continue in 2021 and beyond. She zoomed in on past deals to identify areas of particular interest: app-based food-delivery services, telehealth, low-code technology (platform software that gives corporations the tools to develop apps internally, without developer talent), and, of course, e-commerce.

For Kunze, never-ending tech development is a given. As this is not slowing down, neither will M&A work in the tech industry, for the foreseeable future. She points to financial institutions and the accelerating role of 5G technologies, especially in healthcare, as factors of further growth.

Dimova offered that, based on the firm’s current pipeline, we are nowhere close to a peak in transactions: “We’re optimistic that we will see more and more deals. A compelling fact is that some companies are not looking to sell, but rather to expand. They themselves are looking to acquire assets outside of the country.”

Stoyanov also pointed out that, as a result of a maturing technology industry, “Bulgarian tech companies have themselves started acquiring foreign assets.” The bonus, he said, was that “we see young professionals returning to Bulgaria. We didn’t have a severe lockdown here and for many it was good to be back home.” He also noted that young people, especially those working in IT, “do not bear the burden of where they are born, and this empowers them. Unlimited internet plans on one of the fastest networks worldwide mean they can be anywhere, connected to anything.”

Bulgarian Optimism

As several partners felt the need to point out when speaking about their country’s technology industry, Bulgarians are usually a pessimistic bunch. Indeed, a 2009 Gallup World Poll places Bulgaria in the Very Pessimistic category, along with Haiti or Afghanistan. No matter if the economy is slowing down or picking up steam, Bulgarians routinely score near the bottom on the ‘Opinion on the situation of the national economy’ questions of the Eurobarometer (just 20% positive in 2019).

While Bulgarian pessimism may very well be real, none of it was apparent when speaking of the technology industry. There might even have been flashes of (cautious) optimism. As Ilko Stoyanov suggested, at one point during our interview: “We need good stories in Bulgaria, and this is a particularly bright spot. Not too big as of now, but a reason for optimism.”

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

With the interim government firmly in charge until the upcoming elections take place, Bulgaria is experiencing strong economic wind in its sails, according to Wolf Theiss Partner Richard Clegg.

“Politically, Bulgaria is going through a change right now,” Clegg begins. “An interim government is in place and a third set of elections are expected before the end of the year.” But, even with that said, the country has been experiencing positive movement. “Bulgaria, maybe due to its positioning, has seen investments coming from all over the globe over the last 18 months, particularly from the US – more so than before – and it has been really positive,” Clegg continues. The US is currently a major source of capital investments. “Institutional capital from the US into technology and manufacturing companies brings with it know-how, expertise, and access to international markets. Also, it brings a certain stability to the business climate in the country and connects Bulgaria to the rest of the world, on a macro level,” he says.

Clegg says that, over the last several years, Bulgaria has established itself as prime real estate for startups and that it is now reaping the rewards. “We see that there are now a sufficient number of startups reaching Series B or Series C investment stage, which has generated more interest from other venture capital funds and, of course, a lot of legal work as well,” he says. 

Additionally, Clegg reports an uptick in the number of corporate transactions. “We see investments coming in a variety of different sectors – building up production facilities and entire teams. The capital that’s being committed to the country in this cycle seems to be longer-term capital, which is benefiting the economy across all sectors, including the legal market, as there is additional higher-value ongoing work in areas such as employment and IP.”

Finally, Clegg says that all of this is showing through significant projects. “The concession project for the Sofia airport recently saw a strong consortium of commercial and IFIs, including the EBRD and the EIF – a sign that interest in financing strategic infrastructure is generally strong,” he says. “Also, financial services are booming – not just in traditional funding, but also in terms of fintech – market players are preparing for the future and the number of transactions is rising.”  

Clegg underlines, in conclusion, that the Bulgarian economy seems to be on the up and up. “In many areas the economy is advancing from being only a low-cost option, and is building things from the ground up,” he says. “R&D, engineering… people are building value in many sectors, far more and beyond basic outsourcing work – which is a very positive sign.”

CMS’s Kostadin Sirleshtov and Atanas Bangachev Talk About The Deal of the Year in Bulgaria.

CEELM: First, congratulations on winning the Deal of the Year Award in Bulgaria!

Bangachev: Thank you, we are most excited!

Sirleshtov: We feel great, mainly because we won every deal of the year since it all started for Bulgaria. This was very well deserved, led amazingly by Atanas. Unfortunately, we didn’t have too many deals on the market last year, so it was most positive that this one came to be.

CEELM: Can you describe the deal for us, and the firm’s role in making it happen?

Bangachev: Well, the deal started, and was organized, as a standard exit process. There were a lot of interested parties, a lot of buzz was generated. We acted for the three major selling shareholders – ACWA Power, Blackrock, and Crescent Capital. I have to say that ACWA Power, the Saudi energy and water company, was very professional and their M&A team was very, very well organized, even with this being their first-ever exit! They had very high standards and, from that perspective, were very well organized which, I believe, only helped the deal run smoothly until signing.

Then, the first wave of COVID-19 hit and both the existing financiers and the new one became more conservative, so we were forced to restructure the deal significantly. Before, it would have just been a 100% share sale, with the buyer dealing with post-completion refinancing of the existing facility. However, refinancing of existing debts ended up taking place as part of the completion, which only made the deal more complex. Not to mention that any refinancing and new financing had to be approved by the Bulgarian energy regulator.

On top of that, the existing financiers – public international financing institutions – had a burdensome refinancing process on their hands and we too had to deal with the refinancing – something which was primarily the buyer’s task. Coordinating and aligning the interests of this number of stakeholders was a huge challenge for us, to have it all run smoothly.

But, in the end, it all turned out alright, with us supporting the seller throughout the entire process, both the pure M&A sell-part of the deal, as well as the refinancing and coordination with existing financiers, and the ultimate refinancing.

CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?

Sirleshtov: It was a very natural move for us, simply because we advised the client for nearly ten years, ever since they came to Bulgaria in the first place and acquired this asset. This was, I’d say, a natural move for the client, we did all the legal work for them since early 2012, starting with the acquisition of the asset.

We assisted the client through all difficulties, like feed-in-tariff cuts, and we continue representing  the client in the first ICSID Energy Charter Treaty investment arbitration against the Bulgarian state. ACF maintained the claim, and we just had the final hearing on this case and are expecting an award in early 2022. I’d love to be able to tell you a story of us pitching and winning the mandate, but the thing is that we’ve been holding hands with the client for almost ten years now. Our first mandate for them was due to our excellent personal relationship with one of the minority shareholders, Crescent Capital, who were former representatives of the EBRD for Central and Eastern Europe. They were always active in testing the ground for Bulgaria and they introduced us to ACWA Power and First Reserve, who later-on sold the fund to Blackrock.

CEELM: What specific aspects of the refinancing that made the matter more difficult can you share with us?

Bangachev: Well, we covered most of this already, but, speaking of the specifics, the existing financing was a project development financing, and it had a very complex security package. Additionally, all kinds of restrictions were applied – what the target could and could not do. Moreover, the project development financing was resold to different participants by the international financing institutions.

So, the situation was such that, once a repayment notice was filed, a point of no return was reached. The refinancing could only happen 45 days after the filing and there were various aspects and uncertainties that precluded us from knowing for sure what other steps and conditions might apply. This added some fog to the deal and some degree of unpredictability as to its smooth progress and completion.

Also, we could not ask the new refinancer for any additional leeway. Thus, the real difficulty was setting up a procedure where all this debt periods result in a success and all conditions are satisfied so that when closing comes, we have all the necessary funds from the refinancing parties, and all can run smoothly.

CEELM: In contrast, what, from your perspective, went particularly smoothly and what do you believe contributed to it?

Bangachev: It was a difficult situation for both the seller and the buyer. At times very much so. But both sides really wanted the deal to close and worked hard to find an answer to every question. As did the existing and new financier parties too.

Consequently, all these stakeholders and the six law firms involved – all parties worked for a solution and cooperated smoothly. Although difficult, it was an amicable process, which made the entire ordeal that much easier.

Sirleshtov: At the time of this deal closing, it was considered that the buyer overpaid for the asset. Basically, it was a very stringent bidding process and once Enery came in and committed to such a high price – everybody walked out of the room. However, the reality is that this asset contributed substantially to Enery receiving funds under the Three Seas Fund initiative.

Sofia has been the headquarters of the Three Seas Fund initiative for a year now, and a few days before a large summit it was announced that Enery would be the first recipient of the funds, which would allow them to expand substantially. I think this deal was a cornerstone for the next step in Enery’s development and growth.

CEELM: Why do you believe the judges voted for this deal over the others?

Bangachev: Based on the complexity of the deal, I believe. Also, it was the largest and one of the first renewable energy deals in Bulgaria. Before it, there was a period of a slowdown in this sector, so this deal was a landmark one.

Sirleshtov: I believe it was the largest renewable energy deal on the market as well. It was not just M&A, but M&A plus financing, in the middle of the COVID-19 pandemic. It was not easy, but looking at the rest of the market, I believe this was the most challenging project.

CEELM: Can we expect more similar renewable deals in Bulgaria in the near future? Why/why not?

Sirleshtov: I’d say there is a pipeline of deals now, which are happening. Some of them are not yet announced, but there was a deal with ENEL exiting, which we did, following this one, and there is another one in the pipeline for wind.

Still, the reality on the market is that the buyers are much more committed than the sellers, so if there are no more deals following this – this won’t be caused by the fact that there were no buyers, but by the return on this investment being so good that the businesses are very reluctant to sell.

This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Schoenherr’s Alexandra Doytchinova and Stefana Tsekova Talk About The Deal of the Year in Bulgaria.

CEELM: First, congratulations on winning the Deal of the Year Award in Bulgaria!

Doytchinova: Thank you! We are particularly proud because it is the third year in a row that a transaction on which Schoenherr Sofia has advised has won the CEE Legal Matters Deal of the Year for Bulgaria.

We appreciate having been in charge of this deal, which is one of the largest acquisitions in Bulgaria in 2019/20. It is also the biggest renewables deal in Bulgaria for the past decade, reaching a record value in the RES sector. The deal took almost 12 months to close due to a complex refinancing of the project financing. The COVID-19 pandemic struck shortly after the deal was signed, so the teams on all ends in several jurisdictions moved to home-office at the peak of the project, and the authorities in relevant jurisdictions were not or hardly accessible. We managed to maneuver through these challenges. The successful closing of the deal and the refinancing in this environment is an even greater success for all stakeholders and their advisors.

CEELM: Can you describe the deal for us and Schoenherr’s role in making it happen?

Doytchinova: We were advising on the buy side, including the standard workflows as legal due diligence, negotiations, contract drafting, and merger clearance. What was challenging and, at the same time, exciting was the additional workstreams such as the assistance with the W&I underwriting process, obtaining certain regulatory approvals from the energy regulator, and the refinancing of ACWA’s existing multi-million facilities. We teamed up with our Vienna office, set up, negotiated, and implemented a complex structure to make the acquisition of two targets and one of the first-ever commercial refinancing of facilities granted by the International Finance Corporation (IFC) and the U.S. International Development Finance Corporation (DFC) happen simultaneously and seamlessly.

CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?

Tsekova: We have significant experience in renewables, gained during the first wave of development of RES projects in Bulgaria and in the region as a whole. We have acted for all stakeholders – for developers, for investors, for the financing institutions, and even for the European Commission on reports for the status of implementation of the RES Directive into local legislation. This allowed us to get a very close view of all legal aspects of RES projects and be familiar with the potential risks and particularities of the local market. Our expertise is well-known on the market and our specific experience in RES transactions and projects was definitely a decisive factor.

Doytchinova: The Enery team also knew us from previous projects in the region. They saw the acquisition of ACWA Power CF Karad PV Park as a milestone acquisition and a cornerstone plant in Enery’s portfolio. They were seeking a trusted, experienced, and dedicated advisor and knew we would tick all those boxes.

CEELM: What were the most complex aspects of the deal from a legal perspective?

Doytchinova: Certainly, the simultaneous acquisition, acquisition financing, and refinancing of the existing project financing. Furthermore, there was a lot of pioneering to be done on this deal. This seems to be one of the very few refinancings of an IFC and/or DFC loan. It also seems to be the first renewable project in CEE/SEE financed by a bonds issue.

CEELM: In contrast, what, in your opinion, went particularly smoothly and what do you believe contributed to it?

Doytchinova: Our client’s team was lean and committed. We had the executives on speed dial, they were reachable 24/7 and have set up internal systems to enable prompt decision making. But this deal could not have happened even within these 12 months had it not been for the reasonable and efficient collaboration among counsels. It was CMS Sofia on the other side of the table in the transaction, Wolf Theiss (Vienna and Sofia) on the financing, and Allen & Overy (New York) and Spasov & Bratanov on the refinancing. We know the local teams well, trust each other’s expertise and assessment, which facilitated a very structured and practical approach. All teams literally puled on the same string to close the deal with this challenging structure in this challenging environment.

CEELM: Why do you believe the judges voted for this deal over the others?

Doytchinova: I think it is less the size of the deal which is indeed significant for the Bulgarian market and the energy sector, but more the complexity of the topics and the structure. I think the judges recognized that we have elaborated a structure which, while really out-of-the-box, at the end considered all parties’ interests to a sufficient extent to give them comfort to proceed with the transaction.

CEELM: Can we expect more similar renewable deals in Bulgaria in the near future? Why/why not?

Tsekova: Yes. We see an increased interest and a kind of revival of RES projects in Bulgaria and in the region. We believe the second wave of RES projects is coming. Investors are interested in both greenfield and brownfield projects. Despite the fact that there is no feed-in tariff or other support mechanism for new high-scale projects (above 500 kilowatts), and that the long term PPA with a guaranteed premium for existing projects will expire in the next few years, the development of the technologies and the drop of the price for the equipment will make it commercially viable to develop a RES project and sell the electricity it produces on a commercial basis, without a support scheme.

Further, the European Green Deal and the EU policy set ambitious targets and Bulgaria, being an EU member state, will need to follow. In order to secure its contribution to the overall EU aim of a 32% share of renewable energy in gross-end consumption by 2030, Bulgaria has set a national target of 27.09%. In terms of real figures, this means that the net installed capacity of renewable energy in Bulgaria is expected to increase by more than 2,600 megawatts between 2020 and 2030, allocated as follows: 2,174 megawatts from solar power plants, 249 megawatts from wind power plants, and 222 megawatts from biomass power plants.

Although new high-scale RES projects have to be planned and developed such that their operations are economically viable in a normal market environment, without counting on any state support schemes, the Bulgarian government is considering introducing certain incentives. Currently, it is envisaged that new RES producers with energy sites commissioned after January 1, 2021, will benefit from a release from their obligation to pay the compulsory contribution to the Electricity System Security Fund. Such contributions currently amount to 5% of the annual revenues from the electricity produced by the respective energy site. Further, the production of electricity from RES will be encouraged through the unification of the guarantees of origin with the European System of Energy Certificates and the possibility for their trade on the European market. For this purpose, the Bulgarian Sustainable Energy Development Agency will join the Association of Issuing Bodies. Another new measure envisaged by the Bulgarian government is the establishment of a special administrative unit that will coordinate and assist the investors in the process of issuance of the various permits, which are required for the development, construction, and commissioning of the renewable energy site. There are also other opportunities for optimization, such as the laying of a direct connection line to a customer site in order to save on certain mandatory fees otherwise due, or developing a RES project in an industrial park and providing independent supply to all facilities located in it. There are a lot of opportunities to be explored in this field and we are positive that this will facilitate the revival of the sector.

This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kambourov & Partners has successfully represented Sofia Municipality in a copyright dispute.

According to Kambourov & Partners, “the dispute was initiated by Professor Starchev – the sculptor of elements from the ‘1300 years Bulgaria’ monument, which used to be located in front of the National Palace of Culture in the center of Bulgaria’s capital. The Sofia City Court, as the court of the first instance, dismissed all of Professor Starchev’s claims and concluded that the actions of Sofia Municipality with regard to the ‘1300 years Bulgaria’ monument have been carried out in line with the legal requirements. The case was also decided in favor of Sofia Municipality by the Appellate Court – Sofia in 2019.” According to the firm, “on August 2, 2021, the Supreme Court of Cassation, as the final instance determined, that it does not allow a cassation appeal of the judgment.”

Kambourov & Partners’ team was led by Partner Margarita Guigova.