With the recent rise in coronavirus cases, the likelihood of a nationwide second lockdown in Spain is growing. The president of the Spanish Confederation of Business Organisations, Antonio Garamendi, has said a second lockdown would be “the death knell for the economy”. COVID-19 caused Spain to adopt more severe lockdown measures and much earlier in the year than other European countries, causing severe financial problems, with the IMF predicting a 12.8 per cent decrease in Spain’s GDP this year, exceeding the predicted downturns of European neighbours including the UK (-10.2 per cent), France (-12.5 per cent) and Germany (-7.8 per cent). 

The total public debt of Spain at the end of June stood at EUR 1.29tn (compared with EUR 1.207tn at the same time last year) according to the Bank of Spain, beating another all-time high record in May by over EUR 32bn. Given that GDP is already on a strong downward trajectory, growing public debt is expected to tip the debt-to-GDP ratio to 115 per cent by the end of 2020 (from 95.5 per cent in 2019).

Recent developments in relation to COVID-19 measures include The Ministry of Labour and Social Economy seeking an automatic extension of the Temporary Employment Regulation scheme (the Spanish equivalent of a furlough scheme, which was due to expire on 31 September 2020) until 31 December 2020. This is in addition to the proposed initiative to extend the ban on firing employees, which was first introduced in the wake of the pandemic, and imposing limits on the use of “force majeure” clauses for suspension of contracts or reduction of hours purposes, to be only applicable to businesses which depend on them and companies which trade in specially affected economic activities.

On 18 September 2020S&P Global Ratings downgraded Spain’s rating outlook to “negative” from “stable” and commented that the country’s policy response to the pandemic “is at risk from political fragmentation and reform fatigue”. Moody’s maintained its stable outlook commenting that “[G]overnment support measures combined with past progress in restoring competitiveness and reducing macro imbalances should provide for a robust economic recovery next year”.


At the end of March the total level of non-performing loans (“NPLs”) accumulated by the top six banks of Spain (Santander Group, BBVA Group, CaixaBank, Sabadell, Bankia, and Bankinter) was estimated at around EUR 71.9bn. Although this constitutes a decline in NPL ratio terms, even coming close to the 2019-2020 European average, it is expected to rise in the foreseeable future


The Spanish system of governance is based on parliamentary representation. The head of the Spanish state, King Felipe VI, represents the unity and continuity of the state’s institutions.

The Spanish legal system is a civil law system which is largely based on comprehensive legal codes and Roman Laws. The structure of the Spanish legal system is divided between its legislature (the Parliament - Cortes Generales), executive (the Government composed of the President, the vice-president and the ministers) and judiciary (independent, irremovable judges and magistrates who are only subject to the rule of law). 


We appreciate the assistance of Beatriz Causapé, partner at the Spanish law firm Cuatrecasas, with the following discussion on Spanish law, regulation and practice.


  • No banking licence required
  • Transfer by assignment is commonplace(novation is problematic)
  • Participation agreements are used although not yet judicially tested
  • Trusts are not a recognised legal concept
  • Security agents cannot act as trustees for all lenders
  • Non-resident lenders subject to a 19 per cent withholding tax, subject to exceptions
  • Loan transfers not subject to stamp duty unless they are registrable transactions
  • No legal requirement to notify the borrower of a loan transfer


There is no licensing requirement for lending in Spain. However, certain banking activities (such as taking deposits) may require authorisation from the Bank of Spain (“BoS”), the National Securities Market Commission or the Spanish Economy Minister.

Creditors who grant and/or carry out servicing activities for certain mortgage loans (where debtors are individuals), are required to register with the BoS. Buyers of such performing loans may be obliged to file for registration to act in Spain.

Consumer protection regulation must be observed when dealing with consumer loans. 


Loans are typically transferred by way of assignment. A transfer is usually effected using a Spanish law assignment which transfers the assignor’s rights and obligations in the loan to the assignee. Notably, transfer by novation is not commonplace in Spain.

Novation will result in the original agreement being extinguished and a new contract being formed. A transfer by novation therefore carries a risk of releasing existing security or guarantees.

Participation agreements are valid in Spain, although participation agreements subject to Spanish law have not yet been tested by the Spanish courts and there is a risk that the courts may consider them to be legal assignments, rather than back-to-back funding arrangements, in respect of traded debt


Trusts are not a recognised legal concept in Spain. In addition, Spain is a civil law jurisdiction which does not recognise, in general terms, the difference between legal and beneficial ownership.

Security interests are generally granted in favour of all lenders and not only to the security agent, so that lenders have a direct claim upon enforcement of security or an eventual insolvency of the relevant security provider. Security is accessory to the debt in Spain. Prospective lenders acquiring a loan by way of assignment will therefore take the benefit of any existing security arrangements (and guarantees) by operation of law (although some additional formalities such as notarisation of the assignment or its registration may be convenient or even necessary depending on the type of security).

Unlike in some common law jurisdictions, the security agent is not able to act on behalf of all lenders as a trustee. Although the market is exploring alternative solutions, lenders under a Spanish syndicated loan always accept the security interest before a Spanish notary in order to take the benefit of such security. Notwithstanding the above, the appointment of a security agent for the Spanish security is a common feature of cross-border syndicated transactions. In such cases, it is common to grant the Spanish security to the security agent only, indicating that such security agent acts in the name and on behalf of the relevant lenders from time to time, based on an appointment in this capacity in the underlying secured documents (financing agreement or intercreditor agreement). Such appointment may have to be complemented by the lenders granting special powers of attorney to the security agent and/or notarial deeds of ratification of the security before an eventual enforcement or insolvency scenario, to mitigate the risks of the lenders not being recognised as secured creditors in the absence of being signatories to the security documents.

Lenders should be aware that where existing security is registered (as is the case for mortgages and non-possessory pledges) the assignment of any security arrangements will also need to be registered in order for the new lender to enforce the security directly. Re-registration typically triggers stamp duty taxesWhere security has not been re-registered, enforcement may only be available via the security agent, which can be problematic in Spain.

Parallel debt structures have not yet been tested by the Spanish courts and there is a risk that the courts may consider that the debt owed to the security agent did not have lawful cause (“causa licit”) because it did not arise from any funds actually extended by such security agent. To avoid additional issues, even if the Spanish security is granted to the security agent only and not to all lenders directly, the secured obligation should be the main payment obligation arising from the financing agreement, rather than the parallel debt created thereunder.

In addition, it should be noted that funds cannot benefit from floating mortgages in Spain, and particular care needs to be taken in the review of mortgage backed loans.


Interest paid to non-resident lenders is generally subject to a 19 per cent withholding tax unless (i) the rate is reduced by virtue of a tax treaty between Spain and the jurisdiction of the non-resident lender or (ii) the interest is paid to a resident in another EU Member State, provided that such non-resident lender, being the beneficial owner of the interest, does not operate in Spain through a permanent establishment and is not resident in a “tax haven” (for the purposes of Royal Decree 1080/1991 of 5th July).

The transfer of a loan is generally not subject to stamp duty where the transfer is not a registrable transaction.

However, where the security for the loan is real estate (or any other type of security that is registered with a Spanish public registry) stamp duty will be applicable on the notarial deed formalising the transfer.

The tax base is the maximum guaranteed amount of the loan.The tax rate may vary across different regions in Spain, ranging from 0.5 per cent to 2.5 per cent.

In general, save in instances where loans are transferred between individuals, loan transfers are subject to VAT rather than any transfer tax. However, loan trading is typically treated as exempt from VAT under Act 37/1992 of 18th December.


There is no legal requirement to notify the borrower (or guarantor) that a loan has been transferred in order for the transfer to be effective as between the transferor and transferee. However, where a borrower has not been notified of the transfer, any payments made to the transferor by the borrower will be deemed valid for the purposes of satisfying its obligations under the applicable loan agreement. 

Where there are multiple debtors under a credit agreement, the following notification rules apply: (i) in the case of “joint” debtors each debtor must be notified separately; and (ii) where debtors are “joint and several”, any of the debtors may be notified in order for valid notice to have been given.

Other than as may be expressly provided in the loan documentation, there are no additional borrower consent requirements under Spanish law.

Where a credit agreement expressly refers to notarisation as a requirement, the notary fees will be split between the Seller and the Buyer, if there is no mention of it in the credit agreement, the Buyer will pay all notary fees (term 18.3 LMA Standard Terms and Conditions).

Spanish law prohibits creditors from having an automatic right to keep property given as security or collateral if the debtor fails to pay, except in certain specific cases (i.e. when the collateral is cash, or other liquid instrument). As a result, foreclosure must take place through a public sale of the secured property, normally through a formal auction procedure.

It remains unclear whether funds can benefit from the expedited enforcement process available under the Financial Collateral Directive (Royal Decree-Law 5/2005). 


On 1 September 2020, the Recast of the Spanish Insolvency Act (“SIA”) entered into force with the aim of  clarifying and systematising all existing Spanish insolvency regulations.

The general rules included under SIA should be read together with:

(i)  the temporary rules recently approved by Act 3/2020, which include insolvency and corporate measures temporarily applicable (such as (a) a moratorium on the obligation to file for insolvency, (b) possibility to amend court-sanctioned refinancing agreements and composition agreements, and (c) improved treatment of financing by inside parties; and

(ii)   the future transposing of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks aimed at ensuring that “…(a) viable enterprises and entrepreneurs that are in financial difficulties have access to effective national preventive restructuring frameworks which enable them to continue operating”; (b) honest insolvent or over-indebted entrepreneurs can benefit from a full discharge of debt after a reasonable period of time, thereby allowing them a second chance; and (c) the effectiveness of procedures concerning restructuring, insolvency and discharge of debt is improved, in particular with a view to shortening their length.”

Investors should be aware of the following insolvency risks when doing business in Spain:

Clawback regime: Under section 226 of SIA, certain acts and contracts can be rescinded when entered into two years before the declaration of insolvency. Rescission may apply where the acts or contracts are considered detrimental to the insolvency estate, even in the absence of fraudulent intent.

Equitable subordination: Under section 283 of SIA, equitable subordination arises when the creditors: (i) are partners with unlimited personal liability for corporate debts; (ii) directly or indirectly hold a significant stake in the debtor’s share capital when the credit rights arise (at least 5 or 10 per cent depending on whether the company has securities admitted to trading on an official secondary market or not); (iii) are directors or receivers (including de facto directors or receivers), general directors of the debtor with general powers of attorney or (iv) companies belonging to the debtor’s group; and (v) are common shareholders of the debtor and of other companies of the same group, when the credit rights arise.

The effects of equitable subordination are: (i) automatic subordination; (ii) loss of any in rem guarantee securing the claim held; (iii) potential claw back action risk (unless proven otherwise, any act of disposal entered into the claw back period in favour of a specially related person, even for valuable consideration, will be considered detrimental to the insolvency estate); and (iv) if any specially related person transfers its debt to a third party within two years before the declaration of insolvency, such third party will also be considered a specially related person, unless there is proof to the contrary.

Claims held by specially related parties are deprived of voting rights under a homologation scenario and are not taken into account for threshold purposes.

Contentious credits: Where a debt is the subject of litigation (section 262 SIA together with 1535 Civil Code), and the claim against the debtor is sold to a third party, the debtor may be entitled to cancel the debt by paying the purchase price for which the claim has been sold, along with any litigation costs incurred by the purchaser and any interest payable on the purchase price.



On 3 September 2020, Spain-headquartered gaming group, Codere, sought UK court approval of a creditors meeting to vote on its EUR 250m financial restructuring arrangement, which it claims will help it avoid liquidation amidst the severe impact COVID-19 has had on its operations.

Under the proposed arrangement, Codere's existing creditors under two prior loan arrangements, one for EUR 500m and the other for USD 500m, would be able to lend a further EUR 165m to the group. Additionally, the maturity date of November 2021 for the existing notes would be extended for a period of 2 years. More than 80 per cent of creditors, by value, have already agreed to vote in favour of the plan. The proposal was initially challenged by hedge fund Kyma Capital, which holds a minority stake in Codere but following the judgement at the scheme convening hearing, Kayma Capital dropped its opposition and confirmed its support of the scheme.

Codere reported its Q2 2020 results on 9 September 2020, showing an adjusted EBITDA of EUR -31.1m, down from EUR +76.4m in Q2 2019.  Its online and Uruguay operations were the only segments with positive EBITDA during Q2 although there have been signs of more openings post-quarter.


Further to our Germany Trade AlertBarcelona-based Celsa, the largest manufacturer of steel reinforcement in the UK, secured an injunction in May to postpone a EUR 35m amortization payment due 4 May 2020 and a EUR 100m amortisation payment due 4 November 2020, to the same months in 2021 hence securing further support of the court against twenty creditors seeking acceleration of guarantees later in June. Celsa was said to have defaulted on its EUR 900m jumbo loan amid the unprecedented impacts of the COVID-19 crisis.

Celsa Steel UK, a UK subsidiary of Celsa Group, was announced to become the first company to secure a GBP 30m UK government loan under its emergency funding programme aimed at supporting strategically important enterprises. In order to receive this support the company will have to compromise and agree to various terms such as “assurances on the workforce, reductions in emissions and strict curbs on executive pay”.


Masmovil, a Spain-based telecoms operator, has received a voluntary takeover offer from Lorca Telecom BidCo, S.A.U. (the “Lorca TB”), a subsidiary of Lorca Holdco Limited created as an investment vehicle for a consortium of private equity sponsors interested in the takeover of Masmovil, for all the shares of Masmovil. The offer has been accepted in respect of 113,819,588 shares representing 86.41 per cent of the company's share capital.

On 22 September 2020, the company announced that in connection with this takeover offer, the Board of Directors adopted certain agreements amongst which were changes in the composition of the Board of Directors and Board Committeesand refinancing of Masmovil’s financial debt. The Board of Directors has agreed to proceed with the refinancing of the group's debt amounting to EUR 2.191bn, including repaying and terminating a syndicated financing facility for an aggregate amount of EUR 1.555bn. The Board of Directors has also agreed to join Masmovil and some of its subsidiaries as a guarantor to: (i) a long-term syndicated financing agreement, which includes a term loan of up to EUR 2,2bn and a revolving credit line of EUR 500m; (ii) a bridge financing facility for an amount of up to EUR 800m subscribed on 3 July 2020 (the “Bridge Financing”); and (iii) the issuance of bonds, for an amount of EUR 720m, announced by Lorca Telecom BondCo, S.A.U, to refinance the Bridge Financing.

On 28 September 2020, the company made a further announcement and confirmed that the guarantees provided by Masmovil (and its group companies) will be limited to the refinanced debt and neither Masmovil nor its subsidiaries will grant any guarantees in relation to the debt destined to fund Lorca TB's takeover offer. Additionally, Masmovil confirmed that the only financing to which it or its group companies will adhere to, in the context of this refinancing, is the revolving credit facility of EUR 500m.


On 10 August 2020, the Spanish supermarket group announced that  DEA Finance S.à r.l. (the “DEA”), had initiated a cash tender offer addressed at eligible holders of the DIA issue of EUR 300m, 1.000 per cent Notes due 28 April 2021  (“2021 Notes”) and EUR 300m, 0.875 per cent Notes due 6 April 2023 (“2023 Notes”). DEA is also the sole lender to DIA Finance, S.L., (an indirect subsidiary of DIA) under a EUR 200m additional super senior credit facility. The tender in relation to 2023 Notes expired on 25 September 2020 and DIA further announced on 28 September 2020 that the DEA received just over EUR 41m in aggregate principal amount of valid tenders. On the same date, the DEA also made an announcement noting that, provided the customary closing conditions set out in the Tender Offer Memorandum are satisfied or alternatively waived, on 2 October 2020, it will purchase all of the 2023 Notes.


On 2 September 2020 Cineworld announced that the holder of circa 275 million of its ordinary shares, Global City Theatres B.V. ("GCT"), had agreed the terms of refinancing the financial arrangements in relation to its shareholding, which will involve GCT granting security over its holding in Cineworld to Sand Grove Capital Management LLP, who will  refinance the secured corporate loan facility previously provided to GCT.

On 24 September 2020, Cineworld released its interim results for the 6 month periods ended 30 June 2020 showing an adjusted EBITDA of USD 53m compared to USD 758.6m in 2019 and announced that it is looking into several options to strengthen its liquidity amongst which are (i) an extension of an RCF facility maturing on 31 December 2020; (ii) an additional term loan issuance; and (iii) a potential equity or semi-equity raise

Consequently, on 28 September 2020 Standard & Poor’s rating of Cineworld’s debt was downgraded with outlook set to ‘negative’, estimating that in terms of available liquidity, Cineworld will have between USD 200m and USD 250m in cash and under the additional USD 110m RCF due 31 December 2020 at the end of September 2020. It further indicated that, amongst other factors, a failure to obtain a waiver or a reset of the leverage covenant to be tested in December 2020 on this RCF, which was already waived in June 2020, could result in a further rating downgrade.


NPC, a major franchisee of Pizza Hut and Wendy’s, entered Chapter 11 bankruptcy proceedings on 1 July 2020 with more than USD 900m in debt liabilities, whereby the company had until 24 July to work out a restructuring deal with its creditors. A restructuring plan was put forward detailing the bidding procedures governing the sales process of Pizza Hut and Wendy’s businesses and an option to launch a backstopped rights offering, as per the Restructuring Support Agreement which was agreed prior to the launch of the bankruptcy proceedings by NPC and the lenders.

The court granted its approval of the bidding procedures on 23 September 2020 and set the following deadlines: (i) 10 November 2020 for Wendy’s bids to be submitted; (ii) 18 November 2020 potential Wendy’s auction to take place; (iii) 20 November 2020 NPC, Pizza Hut and company as a whole bids to be submitted; (iv) 30 November 2020 potential Pizza Hut auction to take place; and (v) 1 December 2020 potential “WholeCo” auction to take place.

On 25 September 2020, NPC filed a further motionseeking approval of a rights offering via a backstop agreement whereby, in the instance a sale in favour of the standalone restructuring deal does not go forwardfirst lien lenders would receive a right to purchase up to USD 150m in convertible preferred stock of the reorganised business. The backstop agreement hearing is set to take place on 20 October 2020.


By way of The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 effective from 29 September 2020, on 24 September 2020, the Government announced the following extensions on insolvency measures, which were due to expire 30 September 2020:

  • Those obliged to hold Annual General Meetings will continue to be able to do so virtually until 30 December 2020.
  • Creditors will be restricted from persuing enforcement action for COVID-19 related debts until 31 December 2020.
  • Large suppliers are and will continue to be prohibited from ceasing supplies or requesting additional payments during the time period that a company is going through a restructure, whilst smaller suppliers will continue to be exempt until 30 March 2021.
  • Companies’ entry requirements for a moratorium are also being relaxed (companies subject to a winding up petition or which have in the past 12 months been subject to any insolvency procedure can enter) and extended until 30 March 2021, as are the rules in relation to the temporary moratorium.
  • The commercial eviction ban has been extended until 31 December 2020.


Please contact Iden Asl or Andrew Baker with any queries regarding this month's Trade Alert.


This publication is for general purposes and does not provide comprehensive or full legal advice. It is based upon public information available at the time of publication and is subject to change. Brown Rudnick LLP does not accept any responsibility for losses that may arise from reliance upon information contained in this update. This publication is intended to give an indication of legal issues upon which you may need advice. The contents of this update may not be relied upon as accurate or sufficient and full legal advice should be taken in relation to specific trading situations.