Spain
Common forms of guarantees
There are two common forms of guarantees used in Spain.
Guarantee (fianza)
A guarantor undertakes to pay the guarantee obligation if the borrower fails to pay. The guarantor's liability with respect to the borrower can be either:
- subsidiary (subsidiaria) – the guarantor is only required to pay if the borrower fails to do so; or
- joint and several (solidaria) – the creditor may claim against the debtor or the guarantor at the same time.
As to each guarantor's liability with respect to other guarantors, it can be can be either:
- several (mancomunada) – each guarantor would only be required to pay up to the obligations expressly guaranteed by such guarantor); or
- joint and several (solidaria) – each guarantor would be liable for the total amount of the guaranteed obligations.
Usually, the guarantor's liability is joint and several (both with respect to the borrower and the remaining guarantors).
First demand guarantee (garantía a primer requerimiento)
A guarantor undertakes to pay the guarantee obligation at any time, upon first demand from the relevant creditor, if the relevant conditions set out in the guarantee clause or agreement are met, without any further requirements or exceptions (other than willful misconduct of the creditor). The guarantee is autonomous and independent from the guaranteed obligation.
First demand guarantees are the most common form of guarantee used in Spanish wholesale financing transactions.
Common forms of security
There are two main types of security in rem available for creditors: mortgages (hipotecas) and pledges (prendas).
Mortgage
A mortgage may be sub-categorized as:
- a mortgage over real estate assets (hipoteca inmobiliaria); and
- a mortgage over movable assets (hipoteca mobiliaria).
Pledge
A pledge may be sub-categorized as:
- a pledge without delivery of possession (prenda sin desplazamiento); and
- a pledge with delivery of possession (prenda con desplazamiento).
The nature of the security taken will depend on the asset expressed to be subject to such security.
In this regard:
- Movable assets which may be subject to a mortgage include intellectual and industrial property rights, industrial machinery, commercial establishments, motor vehicles, tramways, train carriages and aircrafts.
- Movables assets which may be subject to a pledge without delivery of possession include machinery, stored merchandise, raw materials, agricultural machinery, works of art, credit rights arising from permits, licenses and authorizations, subsidies or from other agreements with governmental authorities, and other credit rights not represented by securities and not qualifying as financial instruments for the purposes of Royal Decree-Law 5/2005 of 11 March 2005, implementing Directive 2002/47/EC of the European Parliament and the Council of 6 June 2002 on financial collateral arrangements.
- Movable assets which may be subject to a pledge with delivery of possession include shares, quotas, credit rights, receivables and bank accounts.
When the creation of security triggers a significant amount of stamp duty tax and the relevant assets are not significant in the context of the transaction, it is standard market practice to grant a promissory security over the such relevant assets.
The promissory security does not grant to the beneficiary any in rem right over the asset expressed to be subject thereto, until:
- the relevant security is effectively granted; and
- each of the actions required for the perfection of the security is fully performed.
Finally, it is relevant to note that Spanish law permits the creation of guarantees and security interests in favor of future obligations (such as, those arising under the hedging agreements if not signed at closing of a transaction), provided that the main features defining the relevant future obligation are duly determined at the date of creation of the guarantee or security interest.
Are there any restrictions on lending and borrowing?
Lending
Lending is only a regulated activity in relation to mortgages and consumer lending. In these circumstances, a lender that is not a credit institution or other entity registered with the Bank of Spain is required to register on a special administrative public registry before its commencing such lending activity (for foreign entities, the relevant registry is the State Registry created for this purposes within the Consumer General Directorate, or Dirección General de Consumo). There is no prior licensing requirement so this is a simple registration process.
Mortgage and consumer financing agreements are subject to a range of regulatory requirements that do not apply to unregulated loans. For example, for regulated mortgage contracts, there are particular restrictions around how:
- the loans are marketed, originated and sold;
- lenders administer the loans on an ongoing basis; and
- to deal with borrowers who fall behind with their payments.
Furthermore, regulated financing agreements have specific requirements around the information that shall be provided to the borrowers before the execution of the loan and during its life, how the agreement is drafted and formatted and what information must be included. In addition, borrowers under mortgage and consumer loans enjoy certain rights that they do not enjoy in case of non-regulated loans.
As far as exchange control regulations are concerned, there will be reporting requirements to the Bank of Spain on a Spanish resident who receives funds from a non-Spanish resident. The Spanish resident must comply with such reporting requirements (for statistical and information purposes only), if any, on a periodic basis. The timing of the reporting obligations depend on certain thresholds.
There are no additional restrictions that apply to foreign lenders making loans available to Spanish borrowers.
Borrowing
While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.
What are common lending structures?
Lending in Spain can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.
A financing can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).
Syndicated facilities by their nature involve more parties (such as agents which fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate taking the lead in coordinating and arranging the financing.
Facilities will be structured to achieve specific objectives, e.g. term loans, revolving credit facilities,working capital loans, equity bridge facilities, project facilities and letter of credit facilities.
Within the last years, it has become increasingly popular to finance certain transactions (usually LBOs) through private placements issued by the borrower, which are subscribed by Alternative Capital Providers (instead of usual credit institutions). For more information, see Private placement.
Facility durations
The duration of a facility can also vary between:
- a term loan or credit facility, provided for an agreed period of time but with a short availability period;
- a revolving credit facility, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Facility security
A facility can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.
Facility repayment
A facility can also be repayable on demand, on an amortizing basis (in instalments over the life of the facility) or scheduled (usually meaning the facility is repayable in full at maturity).
What are the differences between lending to institutional / professional or other borrowers?
Lending to institutional/professional borrowers is subject to less regulatory oversight and so less burdensome from a compliance perspective.
By contrast, lending in the context of mortgages and to consumers is a regulated activity and so additional protection will be afforded to borrowers. For more information, see Lending and borrowing – restrictions.
Do the laws recognize the principles of agency and trusts?
No, the concept of a trust or a split between legal ownership and beneficial ownership is not generally recognized under Spanish law. Therefore, for instance, if security is granted in favor of a security agent or security trustee instead of each of the creditors, there is a risk that the Spanish courts may consider that the security agent or security trustee may only enforce the security in respect of the amounts owed individually to such security agent or security trustee under the secured obligations, but not in respect of the amounts owed to the other secured creditors. Therefore, it is highly advisable that, if possible, the security is granted in favor of all the relevant creditors.
Regarding the agency role, it is possible to appoint an agent to act on behalf of other lenders. This appointment will be principally for administrative purposes however, for example for the purposes of receipt of notices on behalf of each of the lenders.
Are there any other notable risks or issues around lending?
Generally
Facility agreements and other finance documents are subject to general contractual principles and laws. For example, the Spanish courts have, in relation to payment obligations, the discretion to grant cure periods and to moderate the enforcement of any event of default having consideration to the debt and economic circumstances.
In relation to defaults, Spanish courts are reluctant to accept the early termination of a loan or the enforcement of security for reasons apart from non-payment of the financing or, in some cases, material defaults (e.g. financial covenants).
Specific types of lending
Mortgage loans
Specific to the area of mortgage lending is the issue of the Mortgage Credit Directive, which has been implemented in Spain through Law 5/2019, dated 15 March. This directive aims to prevent the irresponsible lending and borrowing practices that were exposed during the global financial crisis. The Law 5/2019 applies to mortgage loans granted for the purpose of acquiring or renovating a residential dwelling, or acquiring property rights over land plots or buildings. It imposes a number of requirements on real estate lenders, including the need to:
- conduct affordability tests before lending;
- provide standard information about the mortgage to enable borrowers to compare products; and
- ensure that staff are suitably trained.
A lender is only entitled to declare the early termination of the loan on the grounds of non-payment of monies due in the event that this has been provided for in the loan agreement and duly recorded at the Land Registry. In the absence of an early termination clause duly recorded at the Land Registry, the lender is only entitled to claim the principal and interest overdue but not the whole amount of the loan. If the mortgaged property is transferred before the payment of any overdue instalment and there are other instalments not yet due, the property will be transferred subject to the mortgage corresponding to that part of the loan pending payment.
Early termination of the loan cannot be declared (and therefore security may not be enforced) unless the default in payment extends to (i) 3% of the total amount of the loan or 12 monthly instalments, if default occurs in the first half of the term of the loan; or (ii) 7% of the total amount of the loan or 15 monthly instalments, if default occurs in the second half of the term of the loan.
Law 5/2019 also applies to real estate credit intermediaries who are defined as any natural or legal persons that, not acting as a lender nor a notary public, engage in a commercial or professional activity, in return for remuneration, whether pecuniary or in any other form of agreed economic benefit, consisting in bringing a natural person into direct or indirect contact with a real estate lender. Real estate credit intermediaries are subject to registration and supervision requirements.
This law also regulates the advisory service provided by the real estate lender or credit intermediary. The advisory service in relation to the real estate loan is a separate activity from the granting and intermediation of real estate loans.
Consequently, real estate advice is configured as an ancillary activity to the real estate loan or intermediation, so that it can only be provided by those who are registered as lenders or intermediaries.
Regarding the registration regime, depending on the geographical scope of action of the real estate credit intermediary or lender, lenders and real estate credit intermediaries must be registered with the Bank of Spain or with the competent body of each Autonomous Community.
The Bank of Spain shall be responsible for the management of the registration of:
- real estate credit intermediaries and lenders that operate or are going to operate with borrowers with domiciles located throughout Spain or in the territorial area of more than one Autonomous Community, provided that they have their head office in Spain, regardless of whether they additionally operate or are going to operate through a branch or under the freedom to provide services in other EU States, and
- real estate credit intermediaries and lenders who are going to operate in Spain through a branch or under the freedom to provide services, whatever the geographical area in which they are going to carry out their activity.
The management of the registration of real estate credit intermediaries and lenders that operate or are going to operate exclusively with borrowers domiciled within the territorial scope of a single Autonomous Community shall correspond to the competent body of said Autonomous Community, provided that the headquarters of its central administration is located in the same.
Credit institutions and Spanish branches of foreign credit institutions providing services subject to Law 5/2019 are exempted from the obligation to register, as they are already authorized and registered in their condition of credit institutions.
Leveraged lending
In case of leverage lending, it is important to bear in mind the issue of any potential financial assistance. For more information, see Giving and taking guarantees and security.
Are there any other notable risks or issues around borrowing?
Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD) which outlines certain measures for dealing with failing financial institutions, and which was implemented in Spain by Law 11/2015, of 18 June, on the Restructuring and Resolution of Credit Institutions and Investment Firms.
The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.
Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Spanish or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.
There are some reporting requirements when a Spanish resident receives funds from a non-Spanish entity. All Spanish residents shall report to the Bank of Spain:
- own-account transactions with non-residents, however structured and/or settled (i.e. through accounts of residents in Spain or abroad, or through cash delivery); and
- the relevant balance of their total foreign assets and liabilities.
There is no requirement for Spanish residents to report to the Bank of Spain when the total aggregate amount of such transactions with foreign entities is less than €1,000,000 in any year, unless the Bank of Spain has specifically requested a report to be submitted.
César Herrero
Partner
DLA Piper Spain S.L.U.
[email protected]
T +34 91 790 1656
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Jesús Zapata
Partner
DLA Piper Spain S.L.U.
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T +34 91 788 7373
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Juan Gelabert
Partner
DLA Piper
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T +34 91 790 1687
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Natalia López Condado
Counsel
DLA Piper
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T +34 672107449
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