Spanish debt is in the spotlight, and it will continue to be
for a while – no market player questions this.
However, one preoccupation remains: can equity be crammed-down
under Spanish insolvency law?
Unfortunately, the answer for the moment is no. Existing
regulations do not provide lenders with tools to forcefully
cram down the equity in those cases where the latter has no
interest. In fact, Spanish debt-for-equity swaps need the
consent of shareholders at all times.
However, recent amendments to the Spanish Insolvency Act aim
to facilitate debt-for-equity swaps and, in some instances,
provide creditors with some leverage in negotiations with
The amendments provide a new insolvency liability regime for
shareholders and administrators who 'unreasonably' withhold
their consent to debt-for-equity swaps. Note that
debt-for-equity swaps are deemed 'reasonable' if supported by a
report from an independent expert and recognise a pre-emptive
right in favour of the shareholders when the securities
acquired by the creditors due to the proposed capitalisation
are subsequently transferred.
In the context of statutory refinancing agreements, the
amendments reduce the majority required to approve a share
capital increase by the general shareholders' meeting to a
According to the amendments, creditors that equitise credits
under statutory refinancing agreements are not considered
specially related parties and will not be classified as
subordinated creditors in an eventual insolvency scenario.
Further, the amendments allow hold-outs to choose between
equitisation or write-offs in an amount equivalent to the par
value of the shares.
We believe that even if these measures are positive, they
are still insufficient. In this regard, it is regrettable that
the Spanish legislator has not taken a firm step towards
aligning the shareholders' rights within a refinancing
proceeding to their real economic rights. It's understood that
a direct mechanism should be set out under the law in order to
cram down the equity in those instances where they do not have
an economic interest and instead are underwater (applying the
same rationale as the one applied to secured creditors as per
the terms of the reform). Therefore, debt-for-equity swaps and
the position of shareholders in restructurings will likely be a
key area of interest and discussion in the coming months.
Ignacio Buil Aldana and José Luis Lucena