Riksgalden/Swedish National Debt Office

Yale University

EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Resource Library 6-7-2023 Sweden: How the Debt Office issues guarantees and loans Riksgalden/Swedish National Debt Office https://elischolar.library.yale.edu/ypfs-documents2/1736  This resource is brought to you for free and open access by the Yale Program on Financial Stability and EliScholar, a digital platform for scholarly publishing provided by Yale University Library. For more information, please contact ypfs@yale.edu. 6/7/23, 3:46 PM How the Debt Office issues guarantees and loans - Riksgälden.sehttps://www.riksgalden.se/fi/our-operations/guarantee-and-lending/how-the-debt-office-issues-guarantees-and-loans/ 1/2How the Debt Office issues guaranteesand loansBefore the Debt Office issues a guarantee or grants a loan on behalf of the Riksdagor the Government, we analyse the risks involved and the potential consequences ifthe borrower is unable to pay.In accordance with the Swedish guarantee and lending model, the cost of funding mustnot be paid by the taxpayers – but by the borrower. A fee or interest rate will be levied inrelation to the size of the credit risk. This requires the risk to be identifiable andmeasurable. An additional fee is charged to cover administrative costs.First we assess the risk – then we calculate the feeWe start by reviewing the company’s activities, business model, strategic goals,earnings trend and capital structure. As circumstances vary, the Debt Office usesdifferent methods of risk calculation.We then implement valuation methods such as rating analysis and simulations. There isalways a certain degree of uncertainty in a simulation. It is fundamentally a matter ofwhich parameters are included in the model and which values are assigned to theseparameters.We analyse potential outcomes and their likelihood. This is the basis for the cost of aloan or guarantee. Simplified, this is how we calculate the fee: Probability of Default ×Expected Loss Given Default + Administrative Costs = FeeIn some cases, the Riksdag can decide to waiver the fee or to charge a reduced fee. Theportion that is subsequently not paid by the counterparty must then be fundedotherwise.One important cornerstone of the Swedish guarantee and lending model is that the centralgovernment’s guarantees and loans must be self-financed.Limiting the risk incurred by the central governmentThe Debt Office establishes a fee, either for the entire period or for a limited time. Theeconomic risk determines the conditions. If a company changes its ownership structureor risk, it may increase the risk incurred by the central government. There may then be6/7/23, 3:46 PM How the Debt Office issues guarantees and loans - Riksgälden.sehttps://www.riksgalden.se/fi/our-operations/guarantee-and-lending/how-the-debt-office-issues-guarantees-and-loans/ 2/2cause for the Debt Office to renegotiate the size of the fee or to request supplementarycollateral.We are in constant dialogue with the borrower or guarantee recipient. In the event ofmajor changes, the Debt Office will inform the Government.What happens if someone is unable to pay?If the party that has taken out a loan with a guarantee provided by the centralgovernment via the Debt Office is unable to repay that loan for some reason, we willfulfil the guarantee commitment by paying off the borrower’s debt.When this happens, the Debt Office also takes over the lender’s claim against theborrower. We then make active efforts to receive back as much money as possible fromthe borrower.The Debt Office makes an individual assessment in each case, but which is based onthe same fundamental principles. We will only waive our claim, in full or in part, if thereare commercial grounds to do so, or if it is assessed in the particular case thatenforcing the claim is evidently unreasonable. Related content Read more about the regulations governing our operations and our fee principles (In Swedish)

Sweden: How the Debt Office issues guarantees and loans

https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=2731&context=ypfs-documents2

Sweden: How the Debt Office issues guarantees and loans

Abstract

Similar works

Full text

Available Versions

Yale University