Financing and
Restructuring
July 2018
Cases and transactions
> AVENUE EUROPE: Acquiring Rocersa and restructuring
debt
> AGO RA transaction, Sale of NPLs
> ZIP transaction: Purchase of NPLs
>
Hotel financing in Mexico
>
FLUIDRA: Registration of new commercial paper
program
>
Boom in financing of renewable energy projects
>
Direct lending as alternative financing
> Cuatrecasas: one of main firms in Chambers and IFLR
> Cocktail event in London with credit and distressed
debt fund representatives
Legislation
>
Regional legislation on the right to housing
Case law
> Credits arising from single swap are insolvency
prepetition claims
>
Credit outstanding after privilege implementation
will
be classified in line with its very nature
Dation in payment implemented after communication
of article Sbis of Insolvency Act cannot be canceled
>
Requirements for claiming Joans with no return date
>
Supervision of financing institutions is not de facto
directorship
Administrative doctrine
>
Issuing enforceable copies for mortgage credit assignee
Our articles
>
Spain: Secured NPL sales boom
> Banking Regulation 2018. Spain
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Cases and transactions
their essential role in financing the economy and
supporting its growth.
AVENUE EUROPE: Acquiring Rocersa and
restructuring debt
In the framework of this transaction, a detailed
study was carried out on the changing legal doctrine
and on the Spanish general civil law and regional law
on credit assignments.
Cuatrecasas advised a group of funds that manage Avenue Europe on acquiring Roig Cerarnica, S.A.
("Rocersa"), a leading manufacturer of ceramic tiles
in the Valencia autonomous region.
We highlight the technical and logistical complexity
of these kinds of transactions due to the number of
collateral securities, their distribution throughout
Spain, and the changes in the legal nature of the
portfolio's assets that occur from the start of the
sales process and until the transaction is completed.
This debt-to-equity transaction, which was complex
from a legal and business perspective, enabled the
company's business activity to be viable and to
continue, following insolvency proceedings arising
from a downturn in business during the recession;
the company needed to strengthen its debt and
equity structure.
ZIP transaction: Purchase of NPLs
Cuatrecasas advised open-ended investment
company AnaCap Financial Europe S.A. SICAVon
the "Zip" transaction, under which it bought
through a Luxembourg project company- NPL
portfolios owned by Unicaja Banco, S.A. and Banco
Caja Duero Espana, Salamanca y Soria, S.A.
The Cuatrecasas team structured its work in four
parallel lines of action: (a) acquiring the company's
equity from the founding shareholders; (b)
refinancing the financial debt through the
acquisition of all the company's bilateral loans with
over
10 financial institutions; (c) refinancing
working assets, necessary to finalize the sales
process, through the acquiring funds granting a
factoring line of credit; and (d) waiving by the
insolvency administrators of a rescissory action on
guarantees that was pending resolution. After
several months of intense negotiation, the
transaction was successfully completed in all areas.
The Cuatrecasas team carried out an exhaustive due
diligence of the many real estate assets and loans
making up the portfolios. It also advised on the
hiring of a servicer to manage the assets.
"Agora" and the other large NPL portfolios sale
transactions on the Spanish market (including,
recently, "Tribeca," "Egeo," "Sintra," "Beetle," and
Avenue Europe is part of US investment firm
Avenue Capital Group, a leader in the US, European
and Asian distressed debt markets.
AGORA transaction: Sale of NPLs
"Tramuntana") on which Cuatrecasas has advised or
is advising ( either the seller or the buyer), clearly
show the interest of Spanish banks in cleaning up
their balances in line with EU directives, and the
great interest of international investors in Spanish
assets.
Cuatrecasas advised CaixaBank, S.A. on the "Agora"
transaction to transfer a large NPL portfolio to a
foreign investor.
Hotel financing in Mexico
The Cuatrecasas office in Mexico City recently
participated in two of Mexico's most important real
estate financing transactions. We advised
Caixabank, S.A. on refinancing the Banyan Tree
Mayakoba and the Four Seasons hotels, which
belong to the RLH Properties fund. These are two of
This transaction comes under the EU's strategy for
reinforcing the Economic and Monetary Union,
particularly concerning the EU guidelines on
reducing risk in the European banking system,
aimed at helping financial institutions to perform
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the country's most iconic hotels in the five-star
category, located at Playa del Carmen and Mexico
City respectively.
irrigation, and water treatment and purification in
residential, business and public areas. Recently,
Fluidra carried out a cross border takeover merger
with US group Zodiac, thus creating a global leader
in the swimming pool sector.
The two transactions were successfully managed by
Caixa bank, S.A.'s recently created "Hotels &
Tourism" group, which shows the bank's interest in
the hotel sector.
Boom in financing of renewable energy
projects
RLH Properties is a listed fund currently in an
expansion phase that has an large portfolio of top
hotel assets in Mexico.
These transactions show the growing interest of
Spanish financial institutions in participating in
financing transactions of prime assets in Mexico and
highlight the strength of the sector in Mexico.
Project finance regains significance due to growing
activity in the renewable energy sector. The
renewable energy production market, particularly
wind production, has been reactivated due to the
recent public auctions that established a March
2020 deadline for implementing the projects
awarded. Cuatrecasas has been advising both the
financial institutions and the developers on the
legal aspects of these kinds of transactions.
FLUIDRA: Registering new commercial
paper program
Cuatrecasas advised Fluidra on registering a new
commercial paper program with the Spanish
Alternative Fixed-Income Market ("MARF"). This is
the second commercial paper program the
company has registered with MARF, proof of its
interest in this alternative stock market.
This is the case of the recent "Goya" project to
finance the building, implementing, operating,
managing and maintenance of nine wind power
plants in the autonomous region of Aragon with an
installed output of approximately 306 MW;
Cuatrecasas advised the project companies owned
by Mirova, General Electric, Engie and Forestalia. A
syndicate of Spanish banks, with BBVA and the
European Investment Bank as bank agents,
participated in the project's bank financing. The
total investment is supported through a power
purchase agreement, the first of its kind in the
Spanish renewable energy market.
The new program has a similar structure to the
previous program that expired in June 2018 and
on which Cuatrecasas also advised. Banca March
S.A. and Banco de Sabadell S.A. repeated their
roles of registered advisor and payment agent,
respectively.
Also in Aragon, Cuatrecasas recently advised a bank
syndicate led by Banco de Sabadell, S.A. on
financing three wind farms with an output of 103
MW.
The program, with a maximum outstanding
balance of €50 million and in force until June 29,
2019, is aimed at diversifying Fluidra's financing
sources to provide greater flexibility to finance the
group's working assets. The new commercial
paper program will allow the company to issue
these short-term instruments
over
the course of a
year from the date of the program's registration.
Currently, Cuatrecasas is advising the developer in
the "Phoenix" project to finance the building,
implementing, operating, managing and
maintenance of wind farms in the autonomous
region of Aragon with an approximate installed
output of1200 MW, in which is set to be the most
important project finance transaction of the year in
the sector.
Fluidra is the leading entity of a group of
companies whose main activity is the
manufacturing and marketing of products,
accessories and machinery for swimming pools,
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Direct lending as alternative financing
Cocktail event in London with credit funds
and distressed debt fund representatives
Direct lending. which involves financing by national
and international private investors (usually
specialized funds). is gaining ground in Spain as an
alternative to bank loans. There are opportunities
with high yields for private capital. particularly in
the real estate sector.
The London office held a cocktail event on June 28,
which was well attended by representatives from
the credit funds. distressed funds and trading
desks of the major investment banks in the City, all
of which have Spain as one of their investment
targets. Among the attendees, representing over SO
institutions. were investment management groups
including Blackrock, Fortress. Oak Hill Advisors and
Taconic Capital Advisors; and investment banks,
including Bank of America Merrill Lynch,
Deutsche Bank- Distressed Products Group and
JP Morgan.
Cuatrecasas has been advising the companies
financed, investors and debt funds on these kinds of
transactions. A recent and noteworthy example is
the "Felipe" project in which Taconic Capital
Advisors gave financing to project companies of the
Quabit real estate group to acquire land for a new
residential development project. We also advise
other debt funds on an ongoing basis on financing
transactions to buy land, including the deposit for
the developer's loan and the purchase by the
developer of its own debt at a discount to later
refinance it and develop real estate projects.
Recently, we have participated in debt-to-equity
transactions, capitalizing bank debts and
refinancing manufacturing companies. We highlight
that some of these debt funds are themselves
financed through high-yield bond issues.
There was a relaxed atmosphere at the event as the
participants discussed the current market trends
and opportunities Spain offers for foreign funds.
The event showed that Spain continues to be a
most attractive jurisdiction for foreign investors. In
contrast to traditional strategies. such as loan-to
own investment and NPL portfolio trading,
investors are seeking alternative formulas for
investing in Spain, including special situations
lending, litigation funding and hybrid debt equity
strategies.
Lastly. we refer to our participation in the
structuring, as a subsequent financing transaction,
of the direct lending platform incorporated by
OakHill Advisors and Ibero Capital Management to
finance land acquisition and subsequent
development.
The event also consolidated the firm's considerable
and growing presence in London and its position as
a leading law firm in the credit and distressed debt
funds market.
Cuatrecasas: one of main firms in
Chambers and IFLR
Legislation
The Cuatrecasas Restructuring and Insolvency
Practice is one of most recognized on the market, as
seen in the main legal directories, including
Chambers. Legal 500 and IFLR, where it has been
listed as number 1 for several years. Global
Restructuring Review has also recognized the firm
as one of the leaders in the Restructuring and
Insolvency category.
Regional legislation on the right to housing
Some autonomous regions continue to introduce
legislation on protecting the right to housing that
considerably affects assignments of mortgage loan
portfolios, securitization and real estate sales.
For example, on May 9, 2018, Andalusian Act
1/2018, of April 26, came into force (i) amending
Andalusian Act 1/2010, of March 8, regulating the
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right to housing in Andalusia, and (ii) regulating a
right of redemption and pre-emption of the
Andalusian regional government to housing
transferred due to dation in payment or court and
out-of-court mortgage foreclosures, if debt has
expired when the transfer is implemented.
transaction. The court highlights that it makes
sense to apply this regime when termination of the
netting agreement means settling and offsetting
positions in
favor
of and against the parties for all
transactions included in that agreement.
This eliminates the risk of the insolvency
administration accepting favorable contracts and
rejecting non-favorable ones.
The specific cases in which housing transfers
subject to the exercise of the right of redemption
and pre-emption regulated in that act will be
defined in a future Andalusian Plan on Housing and
Land. Until that future plan is approved, the right
can be exercised for real estate that meets the
criteria to be considered social housing aimed at
people included in the special protection groups
established in the 2016-2020 Andalusian Housing
and Refurbishment Plan.
Once RDL 5/2005 regulation was ruled out, the
Supreme Court examined the contract in relation to
the Insolvency Act and clarified that, under the
contract, there are no reciprocal obligations for the
parties but only obligations for one of the parties
during each settlement and, therefore, that the
credits arising from these kinds of contracts must
be classified as ordinary insolvency claims and not
as claims against the insolvent estate, regardless of
whether they are due before or after the insolvency
declaration. Lastly, the court rules out
subordination, considering that it cannot be
compared to interest, even when the contract is
entered into to reduce the risk of the interest rate
of the loan agreement or related credit varying.
In addition, and also in relation to Andalusia, the
Constitutional Court issued Judgment 32/2018, of
April 12 (ECLl:ES:TC:2018:32), declaring
unconstitutional the first additional provision of
Andalusian Act 4/2013, of October, which
established a temporary expropriation of the use of
housing for individuals in special social emergency
situations, applicable to housing involved in eviction
processes or debt collection proceedings started by
financial institutions, their real estate subsidiaries,
or asset management institutions. This judgment
reflects the criteria applied by the Constitutional
Court recently in relation to a similar regulation in
the Navarre region (Judgment 16/ 2018, of
February 22, ECLl:ES:TC:2018:16).
The judgments referred to are Supreme Court
judgment 372/2018, of June 20 (ECLI:
ES:TS:2018:2384) and Supreme Court Judgment
306/2018, of May 24, 2018 (ECLI: ES:TS:2018:1897).
Credit outstanding after privilege
implementation will be classified in line
with its very nature
Case law
Credits arising from single swaps are
ordinary insolvency claims
Supreme Court Judgment 313/2018 of May 28,
2018 (ECLI: ES:TS:2018:2011) analyzes the
following circumstances: in insolvency proceedings,
the dation in payment is authorized for several
properties owned by the insolvent party in
of
the financial institutions whose credit was
guaranteed with a first-ranking mortgage on those
properties. As a result of the dation in payments,
the liens and encumbrances, which included a
second-ranking mortgage in
favor
The Spanish Supreme Court reaffirms its case law
doctrine on the classification in insolvency
proceedings of credits arising from interest rate
swaps. It confirms that the special insolvency
regime established in Royal Decree Law 5/2005
("RDL 5/2005") does not apply to contractual
netting agreements involving a single swap
of the tax
authorities, were ordered to be canceled. The
insolvency administration requested that the
outstanding tax credit be classified as an unsecured
favor
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claim charged against the in rem securities.
However, the tax authorities requested that 50% be
classified as a general preferential claim and the
other 50% as an unsecured claim. The first-instance
court ordered the classification as unsecured; the
court of appeal recognized 50% as a general
preferential claim, subordinate claim for the part
corresponding to the interest and ordinary claim for
the remaining amount.
submission of the communication established in
article 5bis of the Insolvency Act and a few months
before the insolvency declaration. Later, almost 20
judgments were issued on the same case (other
rights assignments by the same insolvent party over
parking spaces to several creditors to pay the
respective credits); all the judgments state the
same doctrine; see, for example, Supreme Court
judgments 275/2018 and 277 /2018, of May 10,
2018;judgments 307 /2018 and 308/2018 of May 24,
2018; and judgment 328/2018 of May 30, 2018.
In these cases, the Supreme Court considers that
there is no overlap or duplicity of privileges; it
considers that, once the guarantee has been
foreclosed, the outstanding credit should be
recognized as it is, whether general privilege,
ordinary credit or subordinated credit, i.e., once the
guarantee has been enforced, the general rules for
classifying credits apply in relation to the
outstanding amount, which will be classified in
relation to its nature. In the case examined, 50% of
the remaining tax credit will be classified as a
general preferential claim credit in line with article
91.4 of the Spanish Insolvency Act.
The important information in the case is as follows:
(i) the credits paid through dations in payment
were due and payable; (ii) the rights were assigned
at double their value, leading to a debt relief over
the credits of approximately 50%; (iii) the
transactions were carried out after the declaration
established in article 5bis of the Insolvency Act in
which the insolvent party had declared to be in an
insolvent state and three months after the
declaration of insolvency; and (iv) the insolvent
party assigned rights on parking lots to other
creditors to pay the respective credits, for a total of
€4,428,600.
This conclusion is not altered by that stipulated in
article 157.2 of the Insolvency Act, under which
"ordinary credits will be paid on a prorrata basis,
together with the credits with special privilege
where these have not been paid by charging them
against the affected assets and rights." The
Supreme Court emphasizes that this is not a
regulation on the classification of claims and that it
is a payment rule for unsecured claims that must be
understood in the sense that the outstanding
amount will be classified as unsecured if, by nature,
it should not be considered a preferential or
subordinate claim.
The tax authorities filed an insolvency rescission
action aimed at the dations in payment the
insolvent party had implemented with its creditors
being declared ineffective. In this case, the Supreme
Court concludes that the dations in payment cannot
be canceled.
The Supreme Court states that the dation in
payment is a complex business because it has
characteristics of (i) the payment or meeting of an
obligation, (ii) the sale, and (iii) the novation due to
the change of object that eliminates the original
obligation.
Dation in payment implemented after
communication of article Sbis of
Insolvency Act cannot be canceled
It refers to its case law in judgments 629/2012 of
October 26 and 487 /2013 of July 10, under which a
due payment carried out during the suspected
period is, generally.justified; however, in certain
circumstances (insolvency, payment made close to
insolvency declaration, nature of credit or status of
creditor) a payment may not be justified because it
breaches the par condicio creditorum principle.
Supreme Court Judgment 254/2018 of April 26,
2018, ECLl:ES:TS:2018:1481, concludes that it is not
possible to cancel the dation in payment on the
rights of the insolvent party over several parking
lots in favor of the creditor to pay the
corresponding credit, implemented after
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The Supreme Court argues and concludes that
there is no asset sacrifice because the rights were
assigned at double their value. The temporary
circumstances in which the dations in payment
were implemented could have been relevant if the
amount of the credits were equal to or less than the
value of the rights assigned (however, it was
confirmed that the amount of the credit eliminated
was higher), and if there had been exceptional
circumstances regarding the nature of the credit
and the status of the creditor (this was not
specified; the insolvent party offered the dations in
payment to creditors in general). Therefore, despite
the proximity to the declaration of insolvency, given
the conditions in which the dations in payment
were carried out, they did not lead to asset damage
in that the asset sacrifice was not unjustified.
the loan's principal. The Supreme Court clarifies
that the interest accrual starts after the 30-day
grace period following the summons, as the loan is
only payable from that date (article 63 of
Commercial Code).
In relation to this point, the Supreme Court
analyzes, in the particular case, when and how the
borrower's payment was summoned.
Requirements for claiming Joans with no
return date
We highlight that the claim of the loan was agreed
at a meeting held by the lending entity and of which
the borrowing shareholder-director was notified by
certified fax (the shareholder-director did not
attend). However, the Supreme Court considered
that the meeting's documents were not sufficiently
explicit and did not meet the requirement of a
formal payment summons as established by law.
Therefore, the Supreme Court considered that the
borrower was duly notified later with the service of
the claim that started the legal proceedings
claiming return of the loan.
In judgment 188/2018 of April 5
(ECLl:ES:TS:2018:1226), the Supreme Court
analyzes the requirements for applying article 313
of the Code of Commerce in relation to claiming a
loan a company granted to its shareholder-director.
Supervision by financing institutions is not
de facto directorship
The loan claimed had not been documented in
writing, and there was indication of a set date to pay
it back.
Judgment 200/2018 of the Madrid Court of Appeal
(28th division) of March 23, 2018 (ECLI:
ES:APM:2018:4547) clarifies that when financing
institutions exercise the powers of control and
supervision, typically agreed in financing
agreements, they are not carrying out duties of
positive management of the financed company,
which could come under the scope of de facto
directorship.
As the instance court classified the loan as
commercial, the Supreme Court confirmed that
article 1128 of the Commercial Code must not be
applied and that article 313 of the Commercial Code
must be applied, which established that a loan for
which no return date has been set will not be
payable until 30 days after the attested summons.
The requirement of an "attested summons," as
defended by the Supreme Court's doctrine, must be
understood in a broad sense accepting any kind of
certified summons, so that the 30-day grace period
for meeting the return obligation can be calculated
from the date of that summons.
The judgment is based on the Supreme Court's case
law doctrine when referring to the concept of de
facto directorship (it refers to Supreme Court
judgment 421/2015 of July 22, ECLI:
ES:TS:2015:3442), and it reminds us that this
concept presupposes a negative element (no formal
appointment of a director) and three defining
elements: (i) carrying out a management activity on
matters usually handled by a company's director;
(ii) the activity is carried out systematically and on
an ongoing basis; and (iii) it is carried out
independently, with autonomous decision making
The legal requirement of the formal payment
summons affects the accrual of default interest of
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and the company's backing. Based on these
elements, the Court of Appeal analyzed the lender's
actions and concluded that they (i) did not
constitute the exercise of management duties but
rather of control and supervision; (ii) were not
carried out systematically and repeatedly (only two
payments were not made due to no authorization
from the lender); and (iii) were not related to
crucial decisions for the company.
issuing of successive enforceable copies of publicly
recorded documents when the applicant had not
obtained such a copy before, thus ending the
different criteria applied by notaries public.
The DGRN considers that notaries public are
empowered to issue another enforceable copy of a
publicly recorded document of a loan, credit or any
other transaction guaranteed with a mortgage on a
registered property when the applicant has not
obtained that copy before and proves to be-or
represents-the new mortgage creditor and,
therefore, is a different individual from the one that
obtained the enforceable copy from the notary
public previously.
In particular, the court considers that the "cash
sweeps" or regular movements of the available
balance in favor of the lender that were agreed in
the contract and the obligation to deposit the
company's lease payments in the pledged account
were no more than acts to exercise the guarantees
established to guarantee the loan (pledge on
current account and assignment of rents as
guarantees). The court (t) concludes the same in
relation to the agreement on the unavailability of
the pledged account's balance, under which the
borrower was obliged to obtain the lender's
authorization to access the funds in the pledged
account; and (ii) regarding the order of payments
established in the loan contract, it confirms that
they are a consequence of the nature of the
financial guarantee of the pledge on the current
account and that, in line with the CJEU's case law
(judgment of November 10, 2016 (Case C-156/15),
ECLl:EU:C:2016:851, summarized in our Newsletter
Regarding this matter, the DGRN seems to be fully
aware of the need to guarantee minimum levels of
legal certainty in a sector as relevant for the Spanish
economy as the mortgage sector and, particularly,
non-performing loans.
Lastly, the DGRN considers that this criterion will,
among other things, reduce the times in mortgage
foreclosures by the new holder, which is favorable
for the local credit market and for the mortgage as a
"right to realize the value" of the property.
Our articles
I Financing and Restructuring, February 2017)
requires effective control of the pledged balances
by the guarantee's beneficiary. Lastly, it adds that,
even if the company's shares are pledged in favor of
the lender, the bylaws do not grant the lender the
powers to exercise shareholder rights.
Click on the following link to article "Spain: Secured
NPL sales boom". DE LUISA, Inigo; RUBIO, Inigo.
International Financial Law Review, IFLR
July 2018
Administrative doctrine
Click on the following link to article "Banking
Regulation 2018. Spain". MfNGUEZ, Fernando; DE
LUISA, Inigo; MfNGUEZ, Rafael. Global Legal
Insights, May 2018
Issuing enforceable copies for mortgage
credit assignee
In a resolution dated June 28, 2018, and at the
request of a group of Spanish companies, the
Directorate General of Registries and Notarial
Affairs ("DGRN") stated its criterion regarding the
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For additional information, please contact
Cuatrecasas.
©2018 CUATRECASAS
This newsletter is a compilation ot legal mformatron prepared by
Cuatrecasas. This mformatmn does not constitute legal advice.
I he mtcllcc.tual property rights to this
document belong to
Cuatrecasas. Any reproduction, drstnbunon, assignment or any
other full or parrtal u-,« of rtu-, newvletrer
prohtbitr-d. 11r1lP�'>
with the prior consent of Cuatrecasas.
i<,
Financing and Resu uctunng
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