Speed read

Law 5/2015, dated 27 April, for the promotion of business financing (Law 5/2015), has introduced important changes in the legal regime of securitisation in Spain.

In this context, we have prepared this e-alert in order to highlight the main aspects of the new legal framework on securitisation in Spain. Furthermore, two other e-alerts covering the new legal framework on: (i) the issuance of debt; and (ii) crowdfunding and financial credit establishments have also been prepared.

Regulatory restatement and securitisation funds unification

Unified regulation

Law 5/2015 consolidates the previously scattered applicable law on securitisation, by repealing Royal Decree 926/1998, of 14 May, that regulates Asset Securitisation Funds (ASF) and Management Companies of Securitisation Funds, and partially Law 19/1992 of 7 July, on the Companies System and Real Estate Investment Funds and Mortgage Securitisation Funds (MSF).

A single category of assets

Furthermore, by unifying the regulation, the distinction between ASF and MSF is removed, thus leaving a single category of Securitisation Funds (SF).

Transitional period

The ASF and MSF that were created before the entry into force of Law 5/2015 and those that are created within two months after the entry into force of Law 5/2015, will continue to be governed until their extinction, with minor exceptions (e.g. transparency rules), by their previously applicable legislation.

Convergence with the legal system of other european jurisdictions

Greater flexibility

1. Extension of SF liabilities: SF liabilities are extended, allowing any third party (not necessarily banks) to grant loans and/or credits to the fund.
2. Guarantees: there is a possibility for SF to grant guarantees in favour of other liabilities issued by third parties (covered bonds).
3. Independent compartments: when provided in the deed of incorporation, the assets of SF may be divided into separate compartments that shall be liquidated independently, and from which securities may be issued or obligations of various kinds assumed (this has already been done in practice, although it was not expressly permitted by law).
4. Pricing: it has been considered that the securities issued by the SF may be traded on regulated markets or multilateral trading facilities like MARF.
5. SF incorporation requirements: although the incorporation requirements for SF remains similar to those already in force, the requirement that asset-backed securities must have credit ratings has been removed. When the securities issued are exclusively targeted for qualified investors and are not permitted to be traded on any official secondary market (this latter condition was not previously required), only an application to the CNMV and the articles of association will be required.
6. Amendments to the incorporation deed: greater flexibility is granted to amend the incorporation deed, and certain circumstances are introduced where no further obligation to seek consent from the bondholders is needed (regarding amendments that the CNMV considers are of little relevance).
7. Registration: the registration of the SF and its compartments in the Commercial Register is now optional, and the annual accounts must be filed with the CNMV.

Removal of restrictions

1. Synthetic Securitisation: Law 5/2015 reduces the applicable rules to synthetic securitisation, allowing such operations to happen by entering into both credit derivatives, such as through the provision of financial guarantees or security holders for credit claims.
2. Finance: the requirement that 50% of the SF’s funding is done through securities is removed.
3. Negotiating with multilateral trading systems: it is expressly stated, although in practice it is already being done, that the bonds issued by the SF may be traded on a secondary market, such trading being optional (first broadcast recorded 6 October 2014 AURIGA IM SMEs EUR).
4. Requirements for the transfer of assets to an SF: the objective requirements for the transfer of assets (e.g. full and unconditional assignment; granting of guarantees by the transferor to the transferee; ensuring the success of the operation) are removed except for the following:
   1. Audited accounts from the transferor for the past two periods and, when appropriate, from the issuer (in the previous regime, the last three periods were required);
   2. If the accounts have exceptions that may affect the transferred assets, the CNMV may refuse the establishment of the fund (but not an absolute prohibition, as before).

In any case, these requirements do not apply if the securities issued by the SF are intended for qualified investors and are not listed (this exemption was not considered in the previous regime).

Management company

Exclusive name

“Sociedad Gestora de Fondos de Titulización” (SGFT)

CNMV

The CNMV becomes the competent regulator to authorise the creation, registration and supervision of SGFTs (competition previously held by the Ministry of Economy and Competitiveness).

Legal regime

A new legal regime for SGFTs is established and includes, in addition to the functions of management and administration of the SF and funds of banking assets, the possibility to manage and represent funds and similar special purpose vehicles, established abroad, according to the applicable rules. The obligations of management companies are expressly regulated in Article 26 of Law 5/2015.

Transitional period

A transitional period of nine months is established for management companies to adapt to the new requirements of Law 5/2015, so that they can obtain and keep the authorisation. These requirements include, among others:

1. Corporate form: SGFTs shall be incorporated as limited liability companies, through simultaneous foundation and with an indefinite time frame.
2. Corporate purpose: SF’s corporate purpose shall be the constitution, administration and legal representation of SF, and funds of banking assets in the terms established by Law 9/2012 of 14 November on restructuring and resolution of credit institutions.
3. Registered office: its registered office and effective administration and management shall be located in Spanish territory.
4. Equity: SGFTs shall have a total equity and a minimum capital of one million euros, fully paid in cash and represented by registered shares.
5. Board of Directors: SGFTs shall have a Board of Directors formed by at least three members.

More protection and transparency

Transparency

1. Supervision of management companies: the supervision and regulation of internal control of management companies will correspond to the CNMV.
2. Prospectus: the management companies shall draft the prospectus with transparency and clarity.
3. Publication: the management companies shall publish on their own website, in addition to the prospectus (as was currently the case), the articles of association and annual and quarterly financial reports.
4. Creditors Committee of SF: Law 5/2015 incorporates the possibility for SF to create a Creditors Committee in the incorporation deed, which, is fully empowered to agree on the best defence of the legitimate interests of creditors of the SF. Both the composition and the powers and rules of operation of the creditors’ committee shall be included in the incorporation deed of the SF, differentiating the participation of the different creditors’ categories. The legal regime of bondholders will apply on any matters that are not covered in the incorporation deed.

Protection

1. Supervision of management companies: the SF (along with their management companies), the entities which assign assets to the SF, issuers of assets created for incorporation into an SF, managers of the assets sold to SF and other persons and entities that may be required under the applicable law shall be subject to the system of supervision and regulation of the CNMV, applying the supervisory regime and disciplinary proceedings of Law 35/2003 of 4 November, on Collective Investment Institutions.
2. Registration of domain and property rights: SFs are empowered to register in the Land Registry (Registro de la Propiedad) their domain and other real rights on any real estate they may own.
3. Protection of the investor by management companies: greater protection obligations on the investors position by management companies have been established (diligence in administration, experts with proven experience, risk assessment of assets, half to avoid conflicts of interest etc.).

Termination

With the amendments introduced by Law 5/2015 only three of the current cases of termination of the SF remain in force, termination causes may be: (i) the total redemption of assets; (ii) a forced replacement of the management company; or (iii) those set out in the public deed. In turn, two new cases of termination of the SF are included: (i) when so decided by the creditors’ meeting by a majority of three quarters; and (ii) when all liabilities are paid in full.