The Spanish Insolvency Act has seen its most material amendment come into effect on 9th March 2014 by Royal Decree - Law 4/2014 . The law now provides for a more flexible system and reduces equity leverage. Under the new law, it is now possible for a Refinancing Agreement (which satisfies the legal requirements for such agreement) to be court approved in a Court Homologation process which will bind dissenting creditors. In practice, 75% of Syndicated Loan creditors can now bind the remaining 25%.
There is a two year hardening period under Spanish law where any transaction which can be detrimental to the Company can be clawed back. The amendment provides a new safe harbour for a Refinancing Agreement to be exempt from the risk of claw back, and other acts will also be exempt, provided the transaction benefits the Company. Debt for equity swaps in restructurings are now specified to be free from equitable subordination risk and new money financing will have super senior priority status for two years from entry into force of the new law. It is unclear how these new loans will rank in priority however if the Company files for insolvency in year three.
This new creditor friendly legal framework is likely to enhance the appeal of the Spanish loan market to distressed investors even further than before.