Spain: Transferring NPLs

Author: | Published: 11 Jul 2016
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Iñigo Rubio

After a successful 2015, the non-performing loan (NPL) market slowed down slightly at the start of 2016. However, in the second quarter many banks, including Bankia, Banco Sabadell, Abanca and Cajamar, of various billions launched NPL portfolios for nominal amounts. These portfolios include both secured and unsecured loans. A significant number of NPL portfolio transactions are currently on the market; they will close before July 30.

The way in which sellers structure the transfer of the NPL portfolio differs depending on whether the transaction is structured as an assignment of the contractual position under the loan agreements, or as a sale of the credit rights derived from an accelerated loan.

As a principle, both are covered by the Civil Code and there are no particular advantages or disadvantages to either. This is because under article 1,528, both imply a credit transfer and all of the correspondent ancillary rights.

However, the key difference is that an assignment of the contractual position does not require acceleration of the loan agreements. It can therefore be accelerated at any time by the new creditor, but it is necessary in the sale of credit rights.

Sellers understand that the advantage of selling an accelerated loan does not require confirmation that assignment restrictions are included in the loan documentation and are therefore freely transferable. Purchasers need to ensure that the loans have been duly accelerated, or that there is a guarantee to accelerate them, if a borrower challenges the acceleration of the loan. This is because the purchaser may not have the contractual capacity to declare the acceleration.

One advantage that purchasers may consider in the case of a sale of credit rights is that the accelerated loan significantly (if not totally) limits the possibility of a borrower becoming reformed without the consent of the creditor. However, this is a remote risk in borrowers with a long history of payment defaults.

Iñigo Rubio