Validated Refinancing Agreements in Spain

The Real Decree-Law 4/2014 substantially reviewed the mechanism for legal ratification, extending its effects to the non-participating creditors or dissidents without collateral and clarifying its scope vis-à-vis creditors with collateral.

Although the legal ratification of the refinancing agreement subscribed by creditors who represent only 51% of the financial liability is acceptable for the first time, it will be necessary to have the support of 60% of the financial liability to extend to the dissident creditors the waiting period for it to be equal to or inferior to five years or the conversion of credits into equity loans.

If the debtor manages to have 75% of its financial liability supporting the refinancing agreement, the possibility opens to impose on the non-signatory or dissident creditors a waiting period superior to five years (although never more than 10 years) reductions on the amount due; capitalization of credits or conversion of those in participating loans; transformation of the debt into any high level financial instrument; expiration or distinct characteristics of the original debt; and transfer of assets or rights to the creditors in payment of the debt in full or in part.

In summary, the modifications include the following:

– With the purpose of facilitating the fast pace and flexibility in those agreements, only the judge will have to verify the support of the majorities required and the formal conditions to grant his ratification. The agreements, once legally validated, cannot terminate in the future if the company has entered into a contract with the creditors.

– As in the unapproved collective agreements, the requirement of a report by an independent expert is eliminated. Additionally, to replace this report there exists an accreditation of the statutory auditor that certifies the support of the majorities of liabilities required.

– The majority required to validate judicially the agreement changes from 55% to 51% (a simple majority). This majority cannot be calculated as before regarding the liabilities of financial entities but instead it is calculated regarding every creditor of financial liabilities. These creditors are understood to be the owners of any financial debt (except for the creditors for commercial operations and those for public liabilities, such as the Spanish Tax and Social Security offices), regardless of whether they are submitted to a financial supervision. However, other creditors can adhere to the agreement — even if they do not have financial liabilities or public liabilities.

– Also as a novelty, when part of the financial liability includes syndicated loans, every creditor entitled to the syndicated loan adheres to the refinancing agreement if the vote is in favor of 75% of the liabilities represented by the loan or the inferior majority, which, when applicable, has been established in the syndicated loan agreement. This measure can have a significant impact in practice because the possibility of dissent between minority creditors in a syndicate is suppressed, and it appears to make the agreements by a majority superior to 75% sterile.

– If 60% of the creditors of financial liabilities have granted (1) deferment (postponements) up to five years, and (2) the conversion of credits into equity loans within the same period of time, these measures will extend to the dissident creditors without collateral: deferment between five and 10 years; reductions; conversion of credits into stocks, debtors’ shares, or participative loans; transformation of the debt into any other financial instrument with distinct characteristics; and transfer of goods in payment of the debts.

Currently, the validated refinancing agreements do not extend their effects to credits with collateral (mortgages, pledges, etc.). With the reform, the validated agreement also affects these credits:

– In the part of the credit exceeding the value of the guarantee: the effects of the agreement extend to these credits as specified in the previous point (deferments, conversion of credits, etc.) in the same terms as for the credits without collateral and with the same majorities.

Up to the value of the guarantee: the effects of the agreement as specified in the previous point extend to these credits when the same majorities of 65% and 80% have agreed on it and calculated based on the value of the guarantees of the accepting creditors.

– On the other hand, there is a possibility that the validated refinancing agreement includes (and extends to the dissidents) the conversion of debt into capital. The agreement of the required members’ general meeting is the simple majority, and a reduction to the creditor dissident is offered as an alternative, which the creditor dissident is free to apply or not.

– In addition, as for the non-validated agreements, there is a presumption of guilt of the creditor if the debtor has refused the capitalization without a reasonable cause.

This article is not considered as legal advice

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