This content is from: Local Insights

Investing in Spanish bad bank assets

Leonardo Fernández Rodríguez
According to Law 9/2012 on restructuring of credit entities and Royal Decree 1559/2012 that develops Law 9/2012, the Spanish bad bank Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria (Sareb) is entitled to incorporate separate estates under the form of bank assets funds (fondos de activos bancarios, or FABs) to which it may assign either assets or assets and liabilities from its balance. FABs will operate as a mix of a securitisation fund and a collective investment vehicle.

Assets eligible to be transferred to any FAB are not limited to those previously assigned to Sareb by credit entities subject to public aid according to applicable legislation, since the eligibility criteria also extends to money and deposits as well as fixed income notes listed in any official secondary market.

Likewise, the liabilities side of FABs will not be exclusively constrained to those hypothetically transferred by Sareb or those generated in the course of its own ordinary business, but also to securities issued by the FAB itself and incurred financing as well as any stake carried out by qualified investors. As separate estates, lacking legal personality, administration and legal representation of FABs will be entrusted to securitisation management companies that meet all requirements set out in Royal Decree 1559/2012.

The aim behind Law 9/2012 and Royal Decree 1559/2012 was, therefore, the setting up a new family of regulated funds wide and flexible enough to match future market trends and interests of prospective investors either in the role of fixed income note holders or as direct investors into FABs.

Although no FAB has been incorporated yet due to negotiations with the tax authorities, it is likely that movements in that direction will commence soon due to the tax advantages compared to any other alternative means of investing in Sareb's assets. Its lower corporate tax duties (one percent as opposed to 30% for an ordinary company) and the possibility to package portions of the Sareb portfolio in a way that suitably responds to investors' appetite make FABs a very interesting choice and a likely reality in the nearby future. The question is: who moves first?

Leonardo Fernández Rodríguez

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