ANNEX I

REFERENCE AND DISCOUNT RATES (1)

Within the framework of State aid control, the Authority makes use of reference and discount rates. The reference and discount rates are applied as a proxy for the market rate and to measure the grant equivalent of aid, in particular when it is disbursed in several instalments and to calculate the aid element resulting from interest subsidy schemes. They are also used to check compliance with the de minimis rule and block exemption regulations.

The Authority adopts the following methodology for setting the reference rates:

(1) This chapter corresponds to the Commission's Communication on the revision of the method for setting the reference and discount rates, OJ C 14, 19.1.2008, p. 6; http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:014:0006:0009:EN:PDF

(2) Normal collateral should be understood as the level of collateral normally required by financial institutions as a guarantee for their loan. The level of collaterals can be measured as the Loss Given Default (LGD), which is the expected loss in percentage of the debtor's exposure taking into account recoverable amounts from collateral and the bankruptcy assets; as a consequence the LGD is inversely proportional to the validity of collaterals. For the present chapter it is assumed that ‘楬igh‘�collateralisation implies an LGD below or equal to 30 %, ‘Normal‘�collateralisation an LGD between 31 % and 59 %, and ‘楲ow‘�collateralisation an LGD above or equal to 60 %. For more details, on the notion LGD, see Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework ‘�Comprehensive Version, available on: http://www.bis.org/publ/bcbs128.pdf

(3) Subject to the application of the specific provisions for rescue and restructuring aid, as currently laid down in the Guidelines on State aid for rescuing and restructuring firms in difficulty (OJ L 97, 15.4.2005, p. 41) and in particular point 24(a), which refers to ‘榓n interest rate at least comparable to those observed for loans to healthy firms, and in particular the reference rates adopted by the Authority‘� Hence, for rescue aid cases, the 1-year IBOR increased with at least 100 basis points shall be applied.

(4) For a comparison between the most commonly used credit rating mechanisms, see e.g. Table 1 in Working Paper No 207 of the Bank for International Settlements: http://www.bis.org/publ/work207.pdf

ANNEX II

STATE GUARANTEES (1)

1. INTRODUCTION

1.1. Background

This Chapter updates the EFTA Surveillance Authority‘檚 approach to state aid granted in the form of guarantees and aims to give EFTA States more detailed guidance about the principles on which the EFTA Surveillance Authority intends to base its interpretation of Articles 61 and 62 of the EEA Agreement, as well as Protocol 3 of the Surveillance and Court Agreement, and their application to state guarantees. These principles are currently laid down in the existing Chapter of the EFTA Surveillance Authority‘檚 State Aid Guidelines on state guarantees (2). Experience gained in the application of the existing Chapter since 2000 suggests that the EFTA Surveillance Authority‘檚 policy in this area should be reviewed. In this connection, the EFTA Surveillance Authority wishes to recall for instance the recent practice of the European Commission in various specific decisions (3) with respect to the need to undertake an individual assessment of the risk of losses related to each guarantee in the case of schemes. The EFTA Surveillance Authority intends to further make its policy in this area as transparent as possible so that its decisions are predictable and that equal treatment is ensured. In particular, the EFTA Surveillance Authority wishes to provide small and medium-sized enterprises (hereafter ‘楽MEs‘� and EFTA States with safe harbours predetermining, for a given company and on the basis of its financial rating, the minimum margin that should be charged for a state guarantee in order to be deemed as not constituting aid within the scope of Article 61(1) of the EEA Agreement. Likewise, any shortfall in the premium charged in comparison with that level could be deemed as the aid element.

1.2. Types of guarantee

In their most common form, guarantees are associated with a loan or other financial obligation to be contracted by a borrower with a lender; they may be granted as individual guarantees or within guarantee schemes.

However, various forms of guarantee may exist, depending on their legal basis, the type of transaction covered, their duration, etc. Without the list being exhaustive, the following forms of guarantee can be identified:

Especially in the latter case, the lack of appropriate legal or accounting records often leads to very poor traceability. This is true both for the beneficiary and for the State or public body providing it and, as a result, for the information available to third parties.

1.3. Structure and scope of the Chapter

For the purpose of this Chapter:

Sections 3 and 4 of this Chapter are designed to be directly applicable to guarantees linked to a specific financial transaction such as a loan. The EFTA Surveillance Authority considers that, owing to their frequency and the fact that they can usually be quantified, these are the cases where guarantees most need to be classed as constituting state aid or otherwise.

As in most cases the transaction covered by a guarantee would be a loan, the Chapter will further refer to the principal beneficiary of the guarantee as the ‘榖orrower‘�and to the body whose risk is diminished by the state guarantee as the ‘榣ender‘� The use of these two specific terms also aims to facilitate understanding of the rationale underpinning the text, since the basic principle of a loan is broadly understood. However, it does not ensue that sections 3 and 4 are only applicable to a loan guarantee. They apply to all guarantees where a similar transfer of risk takes place such as an investment in the form of equity, provided the relevant risk profile (including the possible lack of collateralisation) is taken into account.

The Chapter applies to all economic sectors, including the transport sector, without prejudice to specific rules relating to guarantees in the sector concerned.

This Chapter does not apply to export credit guarantees.

1.4. Other types of guarantee

Where certain forms of guarantee (see point 1.2) involve a transfer of risk to the guarantor and where they do not display one or more of the specific features referred to in point 1.3, for instance insurance guarantees, a case-by-case analysis will have to be made for which, as far as is necessary, the applicable sections or methodologies described in this Chapter will be applied.

1.5. Neutrality

This Chapter applies without prejudice to Article 125 of the EEA Agreement and thus does not prejudice the rules in the EFTA States governing the system of property ownership. The EEA Agreement is neutral as regards public and private ownership.

In particular, the mere fact that the ownership of an undertaking is largely in public hands is not sufficient in itself to constitute a state guarantee provided there are no explicit or implicit guarantee elements.

2. APPLICABILITY OF ARTICLE 61(1)

2.1. General remarks

Article 61(1) of the EEA Agreement states that any aid granted by EC Member States, EFTA States or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Contracting Parties, be incompatible with the functioning of the EEA Agreement.

These general criteria equally apply to guarantees. As for other forms of potential aid, guarantees given directly by the State, namely by central, regional or local authorities, as well as guarantees given through state resources by other state-controlled bodies such as undertakings and imputable to public authorities (4), may constitute state aid.

In order to avoid any doubts, the notion of state resources should thus be clarified as regards state guarantees. The benefit of a state guarantee is that the risk associated with the guarantee is carried by the State. Such risk-carrying by the State should normally be remunerated by an appropriate premium. Where the State forgoes all or part of such a premium, there is both a benefit for the undertaking and a drain on the resources of the State. Thus, even if it turns out that no payments are ever made by the State under a guarantee, there may nevertheless be state aid under Article 61(1) of the EEA Agreement. The aid is granted at the moment when the guarantee is given, not when the guarantee is invoked nor when payments are made under the terms of the guarantee. Whether or not a guarantee constitutes state aid, and, if so, what the amount of that state aid may be, must be assessed at the moment when the guarantee is given.

In this context the EFTA Surveillance Authority points out that the analysis under state aid rules does not prejudge the compatibility of a given measure with other provisions of the EEA Agreement.

2.2. Aid to the borrower

Usually, the aid beneficiary is the borrower. As indicated under point 2.1, risk-carrying should normally be remunerated by an appropriate premium. When the borrower does not need to pay the premium, or pays a low premium, it obtains an advantage. Compared to a situation without guarantee, the state guarantee enables the borrower to obtain better financial terms for a loan than those normally available on the financial markets. Typically, with the benefit of the state guarantee, the borrower can obtain lower rates and/or offer less security. In some cases, the borrower would not, without a state guarantee, find a financial institution prepared to lend on any terms. State guarantees may thus facilitate the creation of new business and enable certain undertakings to raise money in order to pursue new activities. Likewise, a state guarantee may help a failing firm remain active instead of being eliminated or restructured, thereby possibly creating distortions of competition.

2.3. Aid to the lender

3. CONDITIONS RULING OUT THE EXISTENCE OF AID

3.1. General considerations

If an individual guarantee or a guarantee scheme entered into by the State does not bring any advantage to an undertaking, it will not constitute state aid.

In this context, in order to determine whether an advantage is being granted through a guarantee or a guarantee scheme, the European Court of Justice has confirmed in its recent judgments (5) that the European Commission should base its assessment on the principle of an investor operating in a market economy (hereafter referred to as the ‘榤arket economy investor principle‘�. Account should therefore be taken of the effective possibilities for a beneficiary undertaking to obtain equivalent financial resources by having recourse to the capital market. State aid is not involved where a new funding source is made available on conditions which would be acceptable for a private operator under the normal conditions of a market economy (6).

In order to facilitate the assessment of whether the market economy investor principle is fulfilled for a given guarantee measure, the EFTA Surveillance Authority sets out in this section a number of sufficient conditions for the absence of aid. Individual guarantees are covered in point 3.2 with a simpler option for SMEs in point 3.3. Guarantee schemes are covered in point 3.4 with a simpler option for SMEs in point 3.5.

3.2. Individual guarantees

Regarding an individual state guarantee, the EFTA Surveillance Authority considers that the fulfilment of all the following conditions will be sufficient to rule out the presence of state aid.

3.3. Valuation of individual guarantees for SMEs

As an exception, if the borrower is an SME (11), the EFTA Surveillance Authority can by way of derogation from point 3.2(d) accept a simpler evaluation of whether or not a loan guarantee involves aid. In that case, and provided all the other conditions laid down in points 3.2(a), (b) and (c) are met, a state guarantee would be deemed as not constituting aid if the minimum annual premium (‘safe harbour premium‘�a href="#ntr12-L_2011105EN.01003601-E0012" id="ntc12-L_2011105EN.01003601-E0012" shape="rect"> (12)