General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

Agreements whose purpose is the financing of the acquisition of Spanish companies when the borrower is also a Spanish company are usually governed by Spanish law. In the past, larger transactions were executed under English law, and although in recent years the use of English law has been extended to include smaller deals, Spanish law continues to be the norm.

Security agreements over assets located in Spain or shares of Spanish companies must be subject to Spanish law.

According to Regulation (EC) No. 593/2008 (Rome I) on the law applicable to contractual obligations, Spanish courts will recognise any foreign law governing financing agreements owing to Rome I having erga omnes effects. This means that any foreign law is enforceable, irrespective of whether or not it corresponds to an EU member state and provided that validity of that foreign law is proved within the relevant judicial proceeding; nevertheless, any Spanish public policy mandatory provisions will apply.

The submission to a foreign jurisdiction is valid in Spain provided that the exclusive jurisdiction rules established either in the recast Brussels Regulation ((EC) No. 1215/2012) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters or Spanish law (as applicable) are complied with.

Judgments given by a foreign court are enforceable in Spain in accordance with Regulation (EC) No. 1215/2012 (when referring to judgments issued by an EU member state court), or according to Spanish civil procedure regulation (when referring to final judgments issued by a non-EU member state), which establishes that any final judgment rendered outside of Spain may be enforced in Spain under the following conditions:

  • it is in accordance with an applicable international treaty; and
  • in the absence of any such treaty, provided that certain requirements are met (such us that the court that issued the judgment has jurisdiction, the judgment is final and does not contradict Spanish public policy nor previous Spanish resolutions).

Law No. 29/2015 on international judicial cooperation includes a ‘general principle favourable for cooperation’ in respect of the recognition and enforcement of foreign judgments.

In principle, foreign arbitral awards are also enforceable in Spain according to the 1958 New York Convention on recognition and enforcement of arbitral awards.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

The general rule is that acquisitions by foreign entities are not restricted. In some cases, acquisitions may be subject to administrative authorisation (for instance, where the target holds an administrative concession, or is subject to a special regulatory regime, as would be the case with banks and financial services companies), but these would apply to both Spanish and international acquirers.

Spanish companies engaging in transactions with non-residents in Spain must deliver information to the Bank of Spain on a regular basis concerning these transactions (eg, with foreign banks or foreign entities) and the corresponding balances of their foreign financial assets and liabilities.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

Both senior debt and subordinated debt are typically included in acquisition financing in Spain. Junior debt may be provided by mezzanine lenders or by sponsors through ‘participative’ loans that are legally subordinated or by both.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

In acquisitions of public companies where a tender offer is required, a tender bond is mandatory, so that there is certainty of funding. Acquisitions of shares in public companies that do not trigger a mandatory tender offer are not subject to this requirement.

While there is no legal requirement for private acquisitions, ‘certain funds’ provisions are the norm in acquisition finance agreements.

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

The only restrictions applicable are those agreed by the parties under the finance documentation. The parties usually agree on the purpose of the financing as:

  • payment of the purchase price and related costs and taxes;
  • repayment of existing debt of the target company; or
  • attending to working capital needs.


What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

Loan agreements typically include indemnities for currency conversion, taxes, payments not made on the due date, failure to make any prepayment following a prepayment notice, changes in any law or regulation after the execution of the agreement, etc.