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Spain: Dissident syndicate lenders debate

Beatriz CausapéGuayente Gállego
Spanish Royal Decree-Law 4/2014, passed on March 7 2014, has considerably changed the rules for the court-sanctioning of so-called Spanish schemes of arrangement.

Among those changes, the reform has lowered the majorities required to achieve a Spanish scheme. Currently, a majority of at least 51% of the financial liabilities held by all creditors at the time of the refinancing agreement (acuerdo de refinanciación) approval, will suffice to request the insolvency judge to sanction the agreement, so it is considered ring-fenced and protected from any challenge for rescission.

The reform has introduced a controversial section referring to syndicated loans to achieve the 51% majority of the financial liabilities. Section 1 of the Fourth Additional Provision of the Spanish Insolvency Act establishes that all syndicate lenders of a syndicated loan will be deemed to have adhered to the refinancing agreement if at least 75% of them (or a lower percentage if expressly provided in the syndicated loan) have voted for it. Although the act expressly refers to a loan, this should be deemed to refer to all forms of syndicated financings.

In light of such provision, there is debate as to whether dissident syndicate lenders can be considered crammed-down with the approval of the refinancing agreement. Based on the literal wording of section 1 of the Fourth Additional Provision, combined with the wording of the other sections in it which refer to "creditors of financial liabilities… that have expressed their disagreement to the refinancing agreement", we believe the 75% majority has been approved as a measure to make it easier to achieve the 51% threshold of all financial liabilities and enable the debtor's successful refinancing. With such a 75% majority provision, the 100% of the outstanding debt under such syndicated facility would be used to calculate whether the 51% threshold has been reached, but it does not seem to aim to cram-down the remaining dissenting 25% syndicate creditors, which should keep their credits as before the execution of the refinancing agreement (provided that its effects are not extended to all other dissenting creditors under the other qualified majorities of the Fourth Additional Provision).

Beatriz Causapé and Guayente Gállego

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