Essity Prevails as Bondholder Lawsuit Over Vinda Sale Is Dropped

STOCKHOLM, Sweden – January 08, 2026 – Global hygiene and health company Essity announced today that a high-stakes lawsuit brought against it by a group of investment funds in the English courts has been formally discontinued, bringing an end to a year-long dispute over bond loan covenants.

The funds, which held a portion of Essity's bonds maturing in 2029, 2030, and 2031, voluntarily withdrew their legal action. According to Essity's statement, the parties reached an agreement that includes a condition of no further claims against each other related to Essity's major divestment of its shares in Vinda International Holdings. Crucially, Essity emphasized its victory in the standoff, stating it "has not paid the funds or otherwise compensated them in the dispute" and maintains that the original legal action was "unfounded."

The resolution removes a significant legal and financial overhang for the Stockholm-based company, a move reflected in a positive 1.12% rise in its Class B shares on the Nasdaq Stockholm by market close today. The case's closure marks a key victory for Essity's corporate strategy and its robust defense against creditor challenges.

The Heart of the Dispute: The Vinda Divestment

The conflict originated from Essity's strategic decision to divest its 51.59% majority stake in the Hong Kong-listed hygiene company Vinda. The sale, which was completed in March 2024, generated approximately SEK 19 billion in proceeds for Essity, providing a substantial boost to its financial flexibility.

However, the divestment triggered alarm bells for certain bondholders. In October 2024, a group of funds formally requested an early redemption of their bonds, arguing that the Vinda sale constituted an "Event of Default" under the terms of Essity's Euro Medium Term Note (EMTN) program. Their central claim was that the sale represented a "cessation of business" or the termination of a "substantial part of its business."

On the surface, their argument had weight. In the 2022 fiscal year, Vinda accounted for roughly 16% of Essity's consolidated net sales and 18% of its total assets. The bondholders contended that divesting an operation of this scale fundamentally altered the nature of the business they had lent money to. When Essity rejected their claim, the funds initiated legal proceedings in the English courts in December 2024, seeking a formal declaration that an Event of Default had indeed occurred.

Essity consistently and publicly refuted the claim. The company argued that Vinda's contribution to total sales was closer to 8.5% and that the divestment did not represent a complete exit from the region. Essity highlighted its ongoing presence in Asia through licensing agreements for its brands and technologies with Vinda, a point bolstered by legal opinions it had secured confirming its interpretation of the bond covenants.

An Assertive Stand from Bondholders

The legal challenge was not a minor nuisance; it was a sophisticated and coordinated action from a powerful group of investors. The ad-hoc committee of noteholders, which collectively held approximately €270 million of the bonds in question, included funds managed by prominent firms such as Oaktree Capital Management, Sona Asset Management, and Sparta Capital Management.

This group enlisted top-tier advisors, with Houlihan Lokey providing financial advice and the law firm White & Case leading the legal charge. Their strategy was not to immediately demand payment but to seek "declaratory relief" from the court. This legal tactic aimed to secure a judge's ruling that their interpretation of the "cessation of business" clause was correct, which would then give them the leverage to force an early redemption.

The case highlighted a growing trend in European capital markets: the rise of more assertive, US-style bondholder activism. These investors are increasingly willing to scrutinize corporate actions and deploy legal resources to enforce their interpretation of complex debt agreements, creating new challenges for corporate issuers.

A Victory for Essity and a Boost for Investors

The discontinuation of the lawsuit without any financial settlement is a clear vindication of Essity's legal and financial strategy. By standing firm, the company avoided a costly payout and sent a strong message to the market about the integrity of its financial reporting and adherence to its debt obligations.

This positive outcome had been foreshadowed by credit rating agencies. In late 2024 and 2025, both Moody's and S&P Global affirmed Essity's strong investment-grade ratings. In November 2024, Moody's maintained a Baa1 stable outlook, noting the company's improved credit metrics and enhanced financial flexibility following the Vinda sale, with a significant portion of the proceeds used for debt repayment. A month later, S&P Global went a step further, raising Essity's outlook to positive while affirming its BBB+ rating, citing successful debt reduction and low expected leverage.

These ratings actions, combined with the lawsuit's resolution, solidify investor confidence in Essity's management and its strategic pivot away from Vinda. The removal of the legal uncertainty clarifies the company's financial position and is expected to support a favorable cost of borrowing for future capital needs.

Broader Implications for the European Bond Market

While the case is now closed for Essity, its journey through the English courts has left a lasting mark on the European bond market. A preliminary ruling in the case from June 16, 2025, is considered particularly significant for capital markets law. In that judgment, the English High Court dismissed Essity's attempt to challenge the jurisdiction of the court, affirming the right of ultimate beneficial owners of bonds—not just the direct contractual counterparties in complex intermediated holding structures—to bring claims for declaratory relief.

This ruling strengthens the hand of bondholders across the market, giving them a clearer path to challenge issuers in English courts over the interpretation of bond terms. Even though Essity ultimately prevailed on the facts of its specific case, this procedural victory for bondholders sets a precedent that will likely embolden other investor groups in future disputes.

The Essity-Vinda saga serves as a critical case study for corporations undertaking major divestitures. It underscores the paramount importance of meticulously reviewing bond covenants and anticipating potential challenges from an increasingly sophisticated and litigious investor base. The episode demonstrates that even with a strong legal defense, the definition of what constitutes a "substantial" part of a business can become a multi-billion-dollar point of contention. As corporate restructuring continues, the lessons from this discontinued lawsuit will undoubtedly resonate in boardrooms and legal offices across Europe.