Category: Czech Republic

Glatzova & Co has successfully represented Slavia Pojistovna in a dispute against the Czech Republic over damages caused by the adoption of Act No. 274/2021 Coll., which amends the law on the residence of foreigners in the territory of the Czech Republic.

According to Glatzova & Co, “this law resulted in an unlawful disruption of competition, the creation of a state monopoly in the insurance market, and a violation of European Union law. The court of first instance fully upheld our lawsuit and awarded our client damages exceeding CZK 36 million, plus interest.”

The Glatzova & Co team included Partner Libor Nemec, Managing Associate Petr Mundl, and Junior Associate Jan Losenicky.

Editor’s Note: After this article was published, Glatzova & Co announced that on February 19, 2025, the Municipal Court in Prague, acting as the court of appeal, granted the claim on its merits through an interim judgment. The final amount of the claim is subject to further consideration by the court of first instance.

Kocian Solc Balastik has advised Concens Investments on financing phase II of the Ostrava Airport Multimodal Park project via Trinity Bank.

According to KSB, “OAMP is located near the Leos Janacek Airport in Ostrava in Mosnov and will offer a total of 120,000 square meters of first-class commercial space after its completion. Future users will benefit from excellent transport links that combine air, rail, and road transport.”

The KSB team included Partner Martin Krejci, Lawyer Tomas Travnicek, and Junior Lawyer Jakub Mehl.

Glatzova & Co has advised Tetera A Spol as CEPO Green3’s insolvency administrator.

CEPO Green3 was formerly known as Fair Credit International.

According to Glatzova & Co, the insolvency administrator has, as a consequence, “included the business enterprise of Fair Credit Czech, a non-bank consumer credit provider, into the debtor’s estate of CEPO Green3. With the support of our law firm and EC Financial Services, which holds a non-bank consumer credit provider license, the insolvency administrator was prepared to take over the management of the business, which included a receivables portfolio exceeding CZK 1 billion. The purpose of this management was to professionally liquidate the receivables portfolio while reducing operating costs after the business operation, which, based on available information, was no longer a going concern, was terminated.”

Additionally, the firm reports that the “insolvency court held that the business operation could not be terminated before the resolution of the dispute over the exclusion of the business from the debtor’s estate. This view of the insolvency court, although contradictory to insolvency principles from our perspective, ultimately led the insolvency administrator to enter into a multi-party settlement agreement with Fair Credit Czech and the major creditors of the business. As a result of this settlement, the creditors of CEPO Green3 will receive compensation equivalent to the prospects that the managed liquidation under the leadership of EC Financial Services would have brought for these creditors.”

The Glatzova & Co team included Counsel Vaclav Zalud and Junior Associate David Becvar.

A&O Shearman advises Ceske Radiokomunikace on a CZK 5 billion refinancing transaction arranged by Komercni Banka, Ceska Sporitelna, ING, Citibank, PKO Bank Polski, Raiffeisen Bank, and Tatra Banka. Clifford Chance advised the banks.

Ceske Radiokomunikace is a multi-asset digital infrastructure platform in the Czech Republic. According to A&O Shearman, “ultimately owned by the London Stock Exchange-listed Cordiant Digital Infrastructure Limited, CRA is at the forefront of providing television, radio, and internet infrastructure. This refinancing is a strategic move, designed to provide CRA a stable financing platform to allow it to pursue its growth plans, particularly in the data center and cloud services sectors.”

“The successful completion of the long-term refinancing gives our company stability and the opportunity for further organic and inorganic growth,” commented CRA CFO Jiri Cernik. “We plan to use the additional funds primarily for the construction of a data center in Prague-Zbraslav.”

The A&O Shearman team included Prague-based Partner Petr Vybiral, Senior Associate Martina Kristianova, and Associates Jan Vaclav Nedvidek and David Mikyska as well as further team members in London.

The Clifford Chance team included Prague Managing Partner Milos Felgr, Counsels Dominik Vojta and Petr Sebesta, Senior Associates Hana Cekalova and Fola Ajayi, and Junior Lawyers Radek Sikora and Alena Rumlova.

Wolf Theiss has advised Sekyra Group on the sale of a real estate project in Prague to Banka Creditas.

According to Wolf Theiss, “the project, a new office building, will become the new corporate headquarters of the buyer, a prominent Czech bank. The building is expected to be completed within three years and it will provide a leasable area of over 17,000 square meters to Banka Creditas and other companies from its group.”

Sekyra Group is a Czech developer.

The Wolf Theiss team included Counsel Tomas Kren, Senior Associate Barbora Malimankova, and Associate Dan Schneeweiss.

Wolf Theiss could not provide further information on the matter.

Rowan Legal’s TMT practice has been concentrating on AI, cybersecurity, and emerging regulations such as PSD3 and FIDA over the past year, according to Partner Josef Donat, driven by rapid technological advancements and their impact on the regulatory landscape.

CEELM: Over the last year, what has been your firm’s busiest practice?

Donat: We began our journey in the 90s, focusing extensively on IT law and this expertise has grown significantly in time. Over the past year, the developments in AI, cybersecurity, and implementation of PSD3 PRs and FIDA regulations have been our focus.

AI is a hot topic, and dealing with AI legislation is part of our daily routine. Even though everyone is using AI, few really delve into the legal aspects. Our clients are keen to explore this area – Czech banks, for instance, already have several AI tools in place, and the same goes for public sector organizations. We help them navigate regulations.

While more related to the banking and finance sector, our TMT teams are also working with major banks and card providers on what PSD3 and other upcoming regulations will involve. On the cybersecurity front, we have the DORA regulation and NIS2 directive coming up. Although they’re a bit delayed, there’s a lot of ongoing discussion in cybersecurity, which remains a critical area.

CEELM: As a consequence of these developments, what are the main areas of advisory work provided by you?

Donat: It’s quite straightforward – if a company wants to use AI tools for customer service, they need to establish an AI code of conduct and internal rules for employees, management, and suppliers. This includes developing a comprehensive set of internal and external documents. For all use cases, it’s essential to analyze GDPR and cybersecurity aspects and prepare contractual documents for suppliers, along with a risk analysis of the documents from the AI provider. We advise against using public AI tools. Additionally, a risk analysis should be conducted for the fixed terms and conditions and contractual documents for customers using the AI tool.

We’re also enhancing our internal IT capabilities, testing five different tools to benefit both ourselves and our clients. We have a collaborative approach, offering legal guidance while our clients assist us with IT development. We’re figuring out the best solutions, like Microsoft 365 Copilot, and handling the technical work.

CEELM: What is the forecast for the next few months? Are you expecting an increase or decrease in workload?

Donat: The outlook is bright and promising, as technology is evolving rapidly. From a TMT perspective, AI is just getting started, and we can expect a growing number of tools and an increasing need for clients to develop or adopt an AI code of conduct. My team is keeping an eye on legislative developments, including the Czech Republic’s AI initiatives. The legal system there has already allowed AI in several public sectors, especially social services, sparking considerable discussion about its use in these areas. I anticipate that more public sector IT professionals will adopt AI tools and focus on this field.

This is an exciting area for attracting young talent, though the hype hasn’t fully delivered results yet. In the next two years, AI tools will become essential for law firms, and crucial for data analysis and regulatory compliance. That’s why we advise our clients, especially those in heavily regulated sectors like banking, to be careful in their selection of tools.

I also believe that cybersecurity will be a critical issue not just for the upcoming year, but for the entire century. The number of targets and obligated subjects has surged from around 500 to about 10,000. This creates a large pool of clients needing help with the new cybersecurity regulations. It’s essential to offer comprehensive support, which includes not just legal, but technical, procedural, audit, and IT consultancy services.

CEELM: Is there any specific piece of legislation you’re keeping an eye on?

Donat: Cybersecurity is the biggest topic right now, generating significant discussion and noise in the Czech Republic, particularly concerning supply chains and China-based vendors. The law is moving toward stricter rules on supply chain supervision and restrictions. If some Chinese vendors, particularly in the telecom and utilities sector, are banned, it could significantly raise costs for many companies. There’s a lot of debate happening between industry players and the government. We’re keeping a close watch on how the final legislation shapes up.

Clifford Chance has advised HID on its acquisition of Sewio Networks. Setina, Komendova & Partners reportedly advised Sewio Networks.

According to Clifford Chance, HID’s “comprehensive suite of identification and IoT services enables customers to optimize their operations through advanced asset tracking and real-time visibility solutions. Headquartered in Austin, Texas, HID has over 4,500 employees worldwide and operates international offices that support more than 100 countries.”

Brno-based Sewio Networks is a provider of ultra-wideband real-time location systems. According to Clifford Chance, the purchase aims to “enhance HID’s capabilities in asset management and smart factory automation within the industrial and automotive sectors.”

The Clifford Chance team included Prague-based Counsel Michal Jasek, Associate Nikola Svobodova, and Junior Lawyers Petr Rysina and Natalie Kurkova as well as further team members in Houston and Duesseldorf.

Wolf Theiss, working alongside Ropes & Gray, has advised Audax Private Equity on its acquisition of Avantor’s Clinical Services business.

 The transaction’s value is approximately USD 650 million.

Audax is a middle-market investment firm based in Boston and San Francisco.

Clinical Services business, part of Avantor, provides clinical trial and laboratory supply chain services to pharmaceutical and biotechnology companies, contract research organizations, and diagnostic laboratories.

The Wolf Theiss team included Counsels Tereza Naucova, Ondrej Benes, Tomas Kren, and Kamila Seberova, Senior Associate Michal Matous, and Associates Maros Kandrik and Nikola Hnojilova.

Wolf Theiss did not respond to our inquiry on the matter.

Havel & Partners has advised Garbe Industrial Real Estate on the sale of a manufacturing and warehouse complex in Chomutov, North Bohemia, to Fio investment. Wilsons advised Fio investment.

According to Havel & Partners, “the exclusive tenant of the industrial park is Fielmann, a renowned German company specializing in the production of high-end optical glasses.”

The Havel & Partners team included Partner Lukas Syrovy, Senior Associate Albert Tatra, and Legal Assistant Petr Kuncik.

The Wilsons team included Partner Alan Spanvirt, Senior Counsel Juraj Piatka, and Associate Tereza Kufrova.

The sustainable finance sector has seen a surge, with Sustainability-Linked Loans (SLLs) hitting EUR 212 billion in early 2024^[1], driven by a global emphasis on environmental responsibility and incentivizing ESG-compliant practices. This trend underscores the role of SLLs in corporate finance and global sustainability efforts.

Introduction to SLLs

Sustainability-Linked Loans are emerging as a significant part of sustainable finance, allowing borrowers to tie their loan costs to environmental, social, and governance (ESG) achievements. Unlike green loans, SLLs don’t dictate the use of funds but incentivize meeting sustainability targets. They’re versatile, fitting various loan types like term loans and credit facilities.

SLLs: Developments and Practical Considerations

This article delves into the latest developments in SLLs, offering practical insights and focusing on the nuances between European Union (EU) and United States (US) styled facility agreements and their respective impacts on SLLs. The EU’s approach is encapsulated in the Loan Market Association (LMA) standard documentation, a cornerstone in the EMEA loan market, while the US perspective is shaped by the Loan Syndications and Trading Association (LSTA) standard documentation, a mainstay in the US loan market.

European SLL Principles (LMA Standard)

The core attributes of SLLs include the selection of robust and challenging key performance indicators (KPIs), the establishment of sustainability performance targets (SPTs) that resonate with the borrower’s sustainability strategy, the adjustment of loan margins based on the success or failure to meet SPTs, and the rigorous reporting and verification of sustainability performance.

The LMA, LSTA, and Asia Pacific LMA (APLMA) have developed voluntary Sustainability-Linked Loan Principles (SLLP) to promote market consistency.

In May 2023, the LMA introduced draft provisions for SLLs (LMA Draft Provisions), designed to serve as a foundational framework for SLL terms and to enhance market understanding of expectations. These provisions, intended for use with the LMA’s senior multicurrency term and revolving facilities agreement, particularly in leveraged acquisition finance transactions, are also adaptable for other recommended facility agreements. These provisions, while adaptable, do not cover all negotiated elements and are subject to ongoing refinement as market practices evolve.

US SLL Principles (LSTA Standard)

In February 2023, the LSTA released its model credit agreement provisions for SLLs, reflecting the association’s interpretation of the SLLP requirements for its members.

The LSTA’s model differs in, among other things, margin adjustment calculations, definition of declassification events and sleeping SLLs, highlighting the market’s diversity.

LMA vs. LSTA Key Differences

Below, we analyse the LMA’s and LSTA’s approaches to SLLs, highlighting three main areas of distinction: Margin Ratchet, Declassification Event, and Sleeping SLLs.

1. Margin Ratchet

One of the most notable differences is the approach to margin adjustment.

The EU typically employs a symmetrical margin adjustment, where the margin can either increase or decrease based on the borrower’s performance against SPTs, applied uniformly across the facility or tranche. Determining the number of SPTs required to trigger a margin adjustment is essential. The extent of this reduction can differ. The LMA Draft Provisions acknowledge that alternative margin adjustment methods may be more suitable in some cases, such as those that prioritize certain SPTs over others.

In contrast, the LTSA approach utilizes multiple KPIs, each with annual targets and thresholds. Performance outcomes dictate financial adjustments: meeting targets results in reductions, while failing to meet thresholds leads to increases. No change occurs when performance is between these benchmarks. The overall margin discount or premium is then calculated by aggregating the adjustments across the KPIs.

2. Declassification Event

The treatment of declassification events, which allow for the removal of the “sustainability-linked” designation from a facility, varies across the EU and US.

The LMA Draft Provisions specify declassification events as instances where parties fail to agree on sustainability amendments within a set timeframe after a Sustainability Amendment Event. The provisions also allow for the potential addition of further declassification triggers, advising to tailor these to the transaction’s unique KPIs, circumstances, and current market practices. Upon a Declassification Event, margin adjustments are nullified, but declassification is not automatic; it requires lender instruction.

In contrast, the US model doesn’t clearly define declassification events but proposes a scenario where, if KPIs or targets can’t be renegotiated, a temporary margin premium is imposed, leading to an automatic declassification if no agreement is reached within a certain period of time.

3. Sleeping SLLs

“Sleeping SLLs” refer to loans that are equipped with a margin adjustment mechanism and reporting requirements of SLLs, yet they lack defined KPIs and SPTs at the outset, with the intention of determining these at a future time.

Their rise has sparked debate in the lending community due to concerns of greenwashing and its potential to undermine the sustainable finance sector’s credibility. Critics believe that without immediate KPIs and SPTs, these loans may seem less committed to sustainability.

However, Sleeping SLLs have proven useful for companies transitioning towards sustainability, allowing them to adopt specific targets over time. Some borrowers have effectively incorporated these loans into their financing strategies before committing to defined sustainability goals.

LMA has not yet incorporated explicit provisions for Sleeping SLLs within its draft documentation. This absence of guidance leaves a gap in standardization and could lead to varied interpretations and implementations across the market.

In contrast, the LSTA’s Drafting Guidance includes proposed language that specifically caters to Sleeping SLLs. This language facilitates the later establishment of KPIs and SPTs through an amendment process. Notably, this process is streamlined, requiring approval from only the Required Lenders—a subset of the lending syndicate—rather than unanimous consent from all participating lenders. The LSTA’s drafting notes further elucidate that the inclusion of Sleeping SLL provisions should be considered under certain limited circumstances and suggest that this flexibility should be confined to a brief post-closing period, ideally not extending beyond 12 months. This time-limited approach aims to ensure that the transition to defined sustainability criteria is prompt and that the integrity of the loan’s sustainability objectives is maintained.

Market Dynamics and Facility Agreement Evolution

The landscape of Sustainability-Linked Loans (SLLs) has been undergoing a significant transformation, particularly in the year 2023. The dynamics of this market segment are characterized by a delicate balance between the financial incentives offered by SLLs and the potential reputational risks and administrative burdens they carry. This balance has resulted in a somewhat moderated level of SLL transactions. Financial institutions are responding to this environment by introducing more stringent criteria within facility agreements, thereby granting themselves a more intricate set of rights in the event that borrowers fail to achieve predefined sustainability targets.

In an effort to fortify their positions, banks are, among other things, actively seeking to expand the scope of what constitutes a “Sustainable Amendment Event.” This expansion is not limited to predefined occurrences but is evolving to encompass any event that has a material adverse effect on borrower’s sustainability performance. This broadening of definitions is indicative of the banks’ intent to maintain a tight grip on the sustainability aspect of the facilities agreements.

Moreover, banks are increasingly adamant about their authority to revoke the SLL designation in additional instances by broadening the definition of “Declassification Events”. Terms such as “adverse impact” are being employed to describe the negative effects a company or its products may have on environmental sustainability, social principles, or governance standards. The use of such language is a testament to the evolving nature of the market and the heightened scrutiny being placed on borrowers’ sustainability practices.

Lenders and lawyers are also considering clauses to trigger a default, which requires immediate repayment, if a borrower is deemed to have reneged on sustainability commitments.

Conclusion

The evolution of SLL clauses in the US and EU reflects the market’s response to heightened sustainability expectations. Legal frameworks are becoming more complex, and harmonization is key for global sustainable finance. Borrowers and lenders must stay informed and seek expert feedback on SLL terms. The LMA and LSTA are expected to update their standards in response to stricter regulations, ensuring the financial sector supports sustainability goals.

[1] https://www.bbvacib.com/green-and-sustainability-linked-loan-newsletter/

By Kristyna Tupa, Attorney at Law, Schoenherr