This content is from: Local Insights

Spain’s trend towards high-yield bonds

Fernando Navarro Coderque
A number of Spanish companies are nowadays struggling to get new money or to restructure their debt, but traditional financing seems to be still unavailable. In most cases the reason is not the poor fundamentals of such companies but rather that their regular lenders are not in a position to incur further risk with them.

Certain companies are therefore looking for new sources of financing and at the same time for another type of financier. For this purpose, high-yield bonds are becoming popular, usually combined with a revolving credit facility, which is a structure that has been used by large Spanish companies where restructuring their debt.

In view of the Spanish groups that are in a position to take this route, these issues will tend to be secured by some of their affiliates which will give guarantees as well as security over their assets. In this respect, appropriate disclosure under the risk factors in the relevant offering memorandum should address special features of the security granted under Spanish law, as well as those of the Spanish insolvency regime.

It is common practice that a Spanish group intending to launch a high-yield bond creates a special purpose vehicle in a jurisdiction other than Spain for it to act as issuer due to, among other things, corporate limitations and tax reasons. At least in connection with the former, a recent amendment to the Spanish Securities Markets Act has provided much more flexibility in this regard by removing previous limitations which set out that the size of any issue cannot generally exceed the equity of the issuer, posing practical difficulties for Spanish vehicles or even for operating companies. This will no longer be applicable under certain circumstances: for instance where the whole issue is held by qualified investors.

This may well help Spanish companies to get more involved in the issuance of high-yield bonds in the coming months. But time will tell.

Fernando Navarro Coderque

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