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The year in review
On 3 November 2021, Spanish Royal Decree-Law 24/2021 (the Covered Bond RDL) implemented, among other things, the Covered Bond Directive into Spanish law. This new Directive required a substantial amendment of the legal regime and structure of the usual (and almost unique) cédulas type of Spanish covered bond issued by Spanish banks. Traditionally, cédulas hipotecarias were covered bonds secured (without complying with any formalities or requirements) by the pool of all real estate mortgage loans in the books of the Spanish issuers. Three classes of cédulas still exist under the Covered Bond RDL, but the banks will have to create, as customary in the EU covered bond market, specific covered pools of the relevant class of loans or credits (e.g., real estate mortgages for cédulas hipotecarias), which will secure all cédulas of a type issued by the Spanish bank. The Spanish legal regime for covered bonds basically follows the Covered Bond Directive legal regime with some particularities due to the Spanish legal regime (absence of legal formalities as regards cover pool, insolvency regime and exemption from syndicate and bondholders meetings to name a few).
The Covered Bond RDL has taken the option not to benefit from any transitional provisions of the Covered Bond Directive. With effect from 8 July 2022, all Spanish covered bonds are subject to the new legal regime of the Covered Bond RDL. The terms and conditions of the existing covered bonds have changed into the new contractual regime of the Covered Bond RDL by law. No holder will have any claim against the issuer to redeem the covered bonds because of this change. Before this date, all issuers have had to take all actions and steps to adapt their covered bond programmes to the new legal regime, including the approval of the covered bond programme by the Bank of Spain.
The Covered Bond RDL and the necessary burdensome work to adapt to the new legal regime has brought most issuances of covered bonds to a halt and those updates of debt securities programme that contained covered bonds have been updated without them. One issuer, a relevant financial entity, has approved its covered bond programme prospectus with the CNMV and it has launched and closed the first issuance of cédulas successfully. The perception is that investors and rating agencies have accepted these changes of legal regime as an adaptation to the EU covered bond standard. As soon as Spanish banks need to refinance the ECB repurchase programmes, more activity on programmes and issuances of covered bonds (in particular cédulas) is expected to occur later in 2022 and in 2023.
With effect from 14 March 2022, Euroclear and Clearstream (ICSDs) launched a new delivery-versus-payment settlement system for syndicated issues of bonds (the New System). The New System aims to make settlement of syndicated issues of bonds more secure and, consequently, more efficient, thus allowing the removal of the ICSDs’ commitments to pay applicable under the former system and the reduction in any intra-day cash or credit requirements.12
The New System is based on the ‘commissionaire account’ concept. The global certificate representing the bonds is delivered free of payment to the relevant ICSD acting as common safe keeper, but conditionally upon: (1) the bonds being credited to the relevant commissionaire account of the settlement bank, over which the issuer has third party rights; and (2) the release of the bonds from the commissionaire account on a delivery versus payment basis and in their entirety. With this system, the settlement takes place at the level of the commissionaire account, and only once the settlement bank has enough funds to cover the payment of the issue price.
This New System has not only brought about operational changes (e.g., settlement banks are now required to have a commissionaire account with any of the ICSDs), but also changes in terms of the issue documentation of bonds cleared through them.
On 17 January 2022, the CNMV approved the Circular on the advertising of cryptoassets for investment purposes (the Circular). This Circular establishes the rules, principles and criteria that are applicable to the advertising activity of cryptoassets, and it was approved given the special increase in the advertising activity of cryptoassets, the lack of relevant regulation and the potential negative impact an unregulated advertising activity might have for investors. The Circular aimed to ensure that the advertising of the products offer true, understandable and non-misleading content, including an obligation to ‘provide information on the risks of the product in an understandable and visible way’.
The Circular does not contain any rules in connection with the characteristics of the products, or regarding the service providers acting in respect thereof, as it just focuses on the advertising activity. Among other measures, it creates a new supervision regime, under which the cryptoassets advertising activity is subject to the supervision of the CNMV, as well as the obligation to inform the CNMV in the case of mass advertising campaigns (i.e., advertising campaigns addressed to more than 100,000 investors).
Not all crypto-related products are subject to the Circular since it excludes from scope certain cryptoassets such as, for example, non-fungible tokens representing collectable assets or artworks, as well as any assets that may be considered financial instruments for the purposes of the SMA.
Since the entry into force (on 3 May 2021, with certain exceptions) of Law 5/2021 of 12 April, which amended the Spanish Companies Act (SCA) in order to implement Directive 2017/828, Spanish listed companies have been applying the improved regimes for capital increases and issuance of debt securities convertible into shares.
Regarding the ‘loyalty shares’ regime, to date only one company, listed on the MTF BME Growth has adopted this possibility by introducing the necessary amendments to its bylaws. In addition, the new provisions on conflicts of interest and related party transactions for listed companies have raised in practice a quite relevant series of questions among market participants.
The CNMV has been developing and implementing new regulatory instruments in the context of the application of Law 5/2021. On 8 June 2022, the CNMV published the new Circular 2/2022, of 26 May, adopting new notification forms for major shareholdings and treasury stock transactions (so that the transparency regime is specifically adapted to the new ‘loyalty shares’) regime and repealing the old notifications for transactions by directors, as they are disclosed under the management transactions regime of MAR.
In addition, considering Law 5/2021’s objective of encouraging long-term shareholder engagement in listed companies by promoting greater involvement of institutional investors and asset managers and developing the regulation of the role of proxy advisers, on 24 June 2022, the CNMV submitted the Code of good practices for institutional investors, asset managers and proxy advisers (the Code) to public consultation. The Code is initially aimed at institutional investors and asset managers based in Spain, but this scope might be expanded as investors or managers based abroad may also apply its principles voluntarily. It sets out seven principles: long-term strategy; knowledge and monitoring of companies; development and publicity of the engagement policy; exercise of voting rights; transparency of the engagement and voting activities carried out; management of conflicts of interest and governance; and remuneration policies.
Green and social bonds issuances have consolidated in the Spanish market in 2022. As the proposal by the EU Commission to create an EU Green Bond Standard has not yet been implemented, the ICMA’s Green Bond Principles and Social Bond Principles remain as the most relevant applicable provisions. As a result, green and social bond issuances in Spain have used the traditional use of proceeds structure, where issuers are required to invest the proceeds of the issue in eligible projects in accordance with pre-published frameworks.
Separately, Spanish issuers have started to consider other alternatives such as SLBs. Unlike green and social bonds, these types of instruments do not include a restriction on the use of proceeds, but rather a pricing mechanism (a coupon step-up or step-down being the most common ones) that is triggered upon compliance (or non-compliance) with certain sustainability-linked key performance indicators.
Although Spain is still behind other European jurisdictions in terms of the use of these types of instruments, some Spanish issuers have included these alternatives within their EMTN base prospectuses and have issued sustainability-linked bonds thereunder. However, even though the SLBs’ pricing mechanism may be appropriate for corporate issuers, it does not seem to fit so easily with certain debt instruments issued by regulated entities such as banks. The EBA expressed concerns about the use pricing mechanisms in own fund and eligible liabilities instruments,13 so at the time of writing banks have opted not to issue sustainability-linked regulatory capital instruments. The EBA considered that a step-up mechanism could be deemed to be an incentive to redeem the instrument, thus breaching one of the legal requirements set out for their qualification as regulatory capital and loss absorption instruments.
On 30 June 2022, the CNMV authorised the internal rules of Portfolio Stock Exchange (Portfolio), a new MTF based in Spain. This MTF is envisaged for first admission and trading of equity and fixed-income securities, and open to companies of any size regardless of where they are based. Portfolio aims to reduce the overall access and maintenance costs for entities by simplifying intermediaries, as they are authorised to provide primary and secondary market, custody and post-trade processes, and so the companies are not required to hire listing sponsors, agent banks, paying agents, liquidity providers or custodians. This MTF does not require any free float or minimum capitalisation requirements, which might represent a good opportunity to open the trading venues for many small and medium-sized companies. It might also represent a good opportunity of retaining Spain-based companies that were choosing to go public on foreign markets due to the flexibility of requirements and cost savings that these offered compared to the pre-existing alternatives in Spain.
With most of LIBOR settings ceasing to be available as of the end of 2021 and consequently removed from issue documentation, the use of risk-free-rates in debt issuances and programmes has started to increase. In 2021, a number of risk-free rates started to be developed as alternatives to certain ‘traditional’ rates, with SONIA, SOFR and €STR being the ones that are the most frequently used at that moment. During 2022, most of the bases prospectuses (especially for banks) for EMTN and GMTN programmes have incorporated not only the above-mentioned risk-free-rates but also new ones, such as TONA (for yen-denominated issuances) or SARON (for Swiss francs-denominated issuances).
However, and despite certain initiatives such as the ICMA’s, the use of these risk-free-rates is not yet harmonised. For example, the terms of these risk-free-rates, such as calculation methods, observation methods and fallbacks, are slightly different. Therefore, there is room for work in the harmonisation and standardisation of the use and drafting of risk-free-rates in the context of debt issuances.
The market is increasingly showing interest in securities represented by means of DLT. In this regard, keynote issuers have already issued digital bonds (i.e., bonds represented by means of DLT) in accordance with the laws of foreign jurisdictions. In Spain, there have been certain attempts to issue DLT-represented bonds, but it has not been possible to issue an end-to-end DLT-represented bond in Spain yet given that the current regime on representation of securities does not expressly cover that possibility.
However, one of the main novelties of the upcoming new Securities Markets Act is the inclusion of DLT as a separate form of representation. Should this be finally approved, it would be possible to issue end-to-end DLT-represented securities, and Spain would join Germany, France and Luxembourg as the only EU jurisdictions providing for a framework for the representation of securities by means of DLT.
On 6 July 2021, the European Commission published its proposal for a European regulation on green bonds (EU GB Standards Regulation), aimed to set out ‘a voluntary standard of help to scale up and raise the environmental ambitions of the green bond market’. The EU GB Standards Regulation aims to create a useful tool for both issuers, to prove that they are funding legitimate green projects, and investors, to rely on and ensure that their funds are specifically being used for green purposes. The EU GB Standards Regulation is linked to the Taxonomy Regulation,14 as it uses the defining criteria to determine whether a specific activity (and thus, a specific investment) can be classified as ‘green’.
Once the EU GB Standards Regulation is in force, issuers may voluntarily issue European green bonds (EuGB), in which case the provisions of the EU GB Standards Regulation will bind them. The issue of EuGB implies the mandatory compliance by the issuer in order for a bond to be considered green. There will be certain substantive and formal requirements in the EU GB Standards Regulation, a breach of which may lead to sanctions imposed by supervisors.
Another objective of the EU GB Standards Regulation is to regulate the activity of the external reviewers (i.e., entities that are in charge of ensuring that the obligations of the issuer arising from the issue of EuGB are complied with). These entities will be considered regulated entities, obliged to obtain an authorisation and be registered with, and supervised by, ESMA.
On 28 June 2022, the Council of Ministers approved the new Securities Markets and Investment Services Law Draft (the Draft Bill). The Draft Bill has started its parliamentary process for approval, which probably still would take several months. The Draft Bill aims to introduce relevant amendments, as follows:
This regime would provide, among other things: (1) a redemption mechanism for shareholders that can be instrumented, at the moment the SPAC approves the business combination (also known as DeSPAC), as a statutory separation right, issue of redeemable shares, or a capital reduction with repurchase of own shares; (2) a maximum 36-month term for DeSPAC (with a potential 18-month extension to be approved by the general shareholders’ meeting); (3) exemptions to launch takeover bids for those shareholders who acquire direct or indirect controlling interest in the SPAC as a consequence of the exercise of the redemption mechanisms or in the resulting listed company because of the approved acquisition for DeSPAC; (4) non-applicability of the maximum limit on treasury shares applicable to listed companies; and (5) the CNMV to require the SPAC to publish a prospectus if the DeSPAC is carried out through a merger, considering the nature and complexity of the transaction, even when the exceptions of the Prospectus Regulation may apply.
Although during 2021 the interest generated in the past two years in the US and more recently in the European context for these investment vehicles was maintained, the appetite has been diminished recently in the international context. This is due to potential changes in the US SEC regulations as well as the actual performance of certain SPACs, which failed to achieve a business combination. In the specific case of Spain, this has also been fostered by the lack of definition of the regulatory changes to be undertaken in the Spanish regulations for the implementation of the special purpose companies listed to acquire a shareholding in another company.
On 19 May 2022, the CNMV adopted ESMA reviewed guidelines on MAR delay in the disclosure of inside information and interactions with prudential supervision (the Guidelines). The amendments in the Guidelines have two objectives: (1) to provide clarity on when the conditions for a possible delay in the disclosure of inside information in accordance with MAR are met; and (2) to clarify whether communications to credit institutions on capital requirements and P2R and P2G guidelines from prudential supervisors can be considered, if applicable, inside information.
The extended regime on additional screening for FDI in Spain applicable for EU/EFTA residents when a particular investment affects Spanish listed companies, or non-listed companies where the value of the investment exceeds €500 million remains in force up to 31 December 2022 (its last extension having been approved in November 2021).
In November 2021, the Spanish Secretary of State of Commerce submitted a draft of a Royal Decree on FDI to public consultation. The draft aimed to develop the aspects of the Spanish Foreign Investment Law that were modified in 2020 in order to protect companies operating in strategic sectors, especially regarding the screening system for foreign direct investments in Spain applicable to non-EU/EFTA residents. To date, this developing regulation is still being processed and thus has not yet been approved.
On 8 July 2022, the new legal regime applicable to mortgage participations (PHs) and mortgage transfer certificates (CTHs) in the Covered Bond RDL came into force.
PHs and CTHs are critical instruments in the Spanish capital markets since they are the tools to structure the securitisations of Spanish mortgage loans and one of the preferred options for the sale of Spanish non-performing mortgage loan portfolios. While the Covered Bond RDL has not introduced major changes to the legal regime applicable to PHs and CTHs, the following may be of relevance for market operators.
The Third Additional Provision of the Covered Bond RDL has clarified that PHs and CTHs will only be considered transferable securities for the purposes of Article 20.8 of Regulation (EU) 2017/2402 (which provides for a prohibition for securitisations designated as STS to include transferable securities in the underlying exposures) when they are capable of general and impersonal dealing in a financial market given their legal form and transfer regime. This has solved a major concern in Spanish RMBS transactions intending to be designated as STS given that, under the former legal regime, PHs and CTHs were considered transferable securities. While the Spanish market got comfort by building in the documentation provisions ensuring that the PHs and CTHs did not work in practice as transferable securities, the uncertainty generated around this is now removed.
It has repealed the former legal regimen for PHs and CTHs. However, the regulatory developments in Royal Decree 716/2009 have not been repealed (and are likely subject to further regulatory development in the future) and, therefore, remain in force to the extent that they do not contradict the provisions of the Covered Bond RDL.
According to market sources, the Spanish CNMV expressed certain concerns as to the particular regime applicable where the provisions in the Covered Bond RDL and Royal Decree 716/2009 are not fully aligned (e.g., on the calculation of the loan-to-value for PHs), which may have sn impact on securitisations backed by PHs issued after 8 July 2022 until these concerns are solved.
There have been a number of noteworthy cases relating to the Spanish capital markets over the past 12 months.
In past years, various civil proceedings have been brought against a financial entity by institutional investors in relation to the subscription of shares during the IPO of that entity, seeking a ruling that the share subscription be annulled, claiming mistaken consent arising from misinformation in the IPO prospectus. In 2019, the entity brought a final appeal to the Spanish Supreme Court, which requested a preliminary ruling from the Court of Justice of the European Union (CJEU) on the matter. On 3 June 2021, the CJEU issued a decision establishing that an investor who has participated in an IPO might legitimately rely on the information given in the published prospectus and is therefore entitled to bring an action for damages on the grounds of that information, whether or not the prospectus was issued for that investor.
Following the CJEU’s decision, on 21 December 2021, the Supreme Court made a final ruling on the entity’s appeal, based on the reasoning of the CJEU. The Supreme Court dismissed the appeal, considering that for those institutional investors that did not have access to additional information on the economic situations of the issuer, other that the information in the prospectus, an action for damages is admissible.
On 5 May 2022, the CJEU issued a decision resolving the petition of a preliminary ruling from one Spanish provincial court on a claim for the annulment of the subscription of shares issued in a public offering of a financial entity.
In this case, one year after the public offering, all the share capital of the entity was redeemed without any compensation, because of a decision of the Spanish resolution authority (i.e., the FROB). Some former minority shareholders brought that claim asking for the annulment of the share subscription, based on the existence of either: (1) an error in the subscription due to uncompleted or inaccurate accounting and equity information in the offering prospectus; or (2) fraud, when information was considered falsified and concealed. The CJEU ruled that the Prospectus Directive (Directive 2014/59/EU) had to be interpreted in the sense that it is not possible to claim compensation or the nullity of the share subscription or acquisition agreement after the bankruptcy or dissolution of the entity occurs, since it is for the investors to bear that risk.
On 22 July 2022, the Supreme Court rejected the minority shareholders’ request for appeal of the decision of the Spanish Provincial Court, because of the absence of legal ground to request the annulment or the corresponding damages, in accordance with the CJEU.
The tax treatment in the Spanish capital markets has not been subject to recent amendments. The key features of the regime are as follows.
Income obtained by non-Spanish resident investors from a Spanish entity shall be considered Spanish source of income and, therefore, subject to taxation in Spain under the Spanish Non-Resident Income Tax (NRIT) Law (without prejudice to the provisions contained in any applicable tax treaty for the avoidance of double taxation), generally by way of withholding tax (NRWHT).
Capital gains on the disposal of shares and units issued by Spanish resident entities or undertakings for collective investment (UCITs) are subject to NRIT, currently at 19 per cent. It should be noted that the paying entity is not obliged to apply NRWHT, except for gains arising from an investment in a Spanish UCIT. Notwithstanding the foregoing, the capital gain might be exempt from taxation in Spain should any of the following scenarios occur:
Dividend payments obtained by a non-resident from a Spanish entity are subject to NRIT, currently at 19 per cent; the paying entity obliged to apply NRWHT, unless a specific NRWHT exemption applies. Note that, under the provisions implemented in Spain in line with the EU Parent–Subsidiary Directive,15 dividends distributed by a Spanish subsidiary to its EU parent company or its EEA parent company (with some additional prerequisites) might be exempt from NRWHT in Spain, provided that certain requirements are met (including the fulfilment of the specific anti-abuse provision). In any event, those tax treaties for the avoidance of double taxation concluded with Spain must be considered to determine whether reduced NRWHT rates or a full NRWHT exemption apply.
Interest payments obtained by entities non-resident, for tax purposes, in Spain from a Spanish company will be regarded as Spanish source financial income for Spanish tax purposes and taxed accordingly (i.e., subject to NRWHT, at the general tax rate of 19 per cent). Those third-party lenders should benefit from the NRWHT exemption provided under Spanish domestic rules (as defined below), insofar as the lenders (1) are resident in the EU or an EEA Member State (with an effective exchange of tax information) (other than Spain), provided that they do not obtain income through a territory considered to be a non-cooperative jurisdiction for Spanish tax purposes nor acts through a permanent establishment in Spain or outside the EU or the EEA with which the relevant lender’s income is effectively connected; and (2) are able to obtain a certificate of tax residence issued by the relevant tax authorities and renew it on an annual basis. Notwithstanding the foregoing, there is a special tax regime for income derived from preference participations and debt instruments issued by a Spanish issuer.16 This provides that non-resident taxpayers shall not be subject to NRIT or NRWHT in Spain to the extent that the information procedures in the format required under Law 10/2014 and the applicable regulations17 are duly fulfilled. These procedures no longer require information to be provided on the identity and country of residence of the investors.
Council Directive (EU) 2016/881, of 25 May 2016, amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, which has in turn been recently amended by Council Directive (EU) 2018/82218 of 25 May 2018 (DAC 6), provides for the mandatory disclosure to tax authorities of information on ‘potentially aggressive tax planning arrangements’ by intermediaries or, if there is no intermediary or the intermediary is protected by legal professional privilege, by the taxpayer. As far as capital market transactions are concerned, it seems that only a limited number of cross-border IPOs may be affected, when the proceeds are ultimately remitted to a non-cooperative jurisdiction.
As regards the status of the implementation of DAC6 in Spain, on 30 December 2020, the Spanish Official State Gazette published Law 10/2020 of 29 December, which implements in the Spanish domestic legislation the provisions foreseen under DAC6, including two Additional Provisions in the Spanish General Tax Law,19 which refer to mandatory disclosure of information on reportable cross-border arrangements and obligations between individuals (intermediaries and taxpayer) derived from the mandatory disclosure of information. In April 2021, the Spanish Official State Gazette published Royal Decree 243/2021 of 6 April, modifying the Spanish General Regulations on Tax Audits and Proceedings,20 which complements and develops the transposition of DAC6 into the Spanish domestic legislation by Law 10/2020.
This regulation develops, among other issues: (1) the requirements that a cross-border arrangement should meet for it to be considered as reportable; (2) the figure of intermediaries on which the main reporting obligation falls; and (3) the information (data) that should be included in the relevant reporting forms. It also establishes the rules on the triggering of the obligation to report and the deadline for reporting. It also establishes the rules on the triggering of the obligation to report and the deadline for reporting.
Neither formal nor informal guidance has been provided by the Spanish tax authorities on how each hallmark should be interpreted.
On 15 October 2020, Law 5/2020 regulating the Spanish financial transactions tax (FTT) was approved, and, on 16 January 2021, it came into force. According to the Law, the FTT applies at a rate of 0.2 per cent to certain acquisitions of shares listed on a Spanish regulated market and issued by Spanish companies whose market capitalisation exceeds €1 billion,21 regardless of the jurisdiction of residence of the parties involved in the transaction. Debt instruments are not subject to the FTT.
On 22 December 2021, the European Commission published a legislative proposal for a Directive, known as the Anti-Tax Avoidance Directive III (ATAD 3), applicable to all corporate tax residents of Member States without any materiality threshold, which aimed at preventing the use of shell companies for tax evasion and avoidance in the EU. ATAD 3 proposes the introduction of a ‘minimum substance test’ and reporting requirements to identify shell companies, and could have serious consequences for investment structures that do not carry out a ‘genuine economic activity’.
As regards the ‘minimum substance test’, it is proposed to impose reporting obligations on taxpayers to assist Member States in identifying undertakings that are engaged in an economic activity but that do not have a minimal substance and are misused for obtaining tax advantages (shell companies). It also proposed the allocation of tax consequences in the event an undertaking is qualified as a shell company for tax purposes, such as the application of a ‘look-through’ approach and the disallowance of any tax reliefs granted under relevant tax treaties for the avoidance of double taxation and Directives.
The draft Directive is under negotiation phase among the Member States, and the European Commission proposes that the Directive shall come into effect as of 1 January 2024. To date, we are not aware of any announcement by the Spanish tax authorities, the Spanish General Directorate of Taxes (the public body responsible for the interpretation of taxes and the proposal of legislative amendments on Spanish tax matters) or the Ministry of Finance regarding the terms of ATAD 3 and its potential transposition into domestic tax legislation (unilaterally), particularly with regard to the measures relating to shell companies.
On 6 September 2022, Law 16/2022, amending the Insolvency Law, was published in the Spanish Official Gazette. By virtue of the Law, the Spanish legislator completes a deep structural reform of the Spanish pre-insolvency and insolvency system. It also completes the transposition of EU Directive 2019/1023, of the European Parliament and of the Council, of 20 June 2019 on preventive restructuring frameworks. Law 16/2022 introduces:
Some amendments affecting securities and securities markets are as follows:
On 30 May 2022, Regulation (EU) 2022/858 on a pilot regime for market infrastructure based on distributed ledger technology (the Pilot Regime) was approved. The Pilot Regime lays down certain requirements in relation to DLT market infrastructure and its operators and allows obtaining certain permissions under and exemptions from CSDR and MiFID II to allow the admission to trading DLT securities in EU trading venues, recording trades in DLT securities settlement systems or EU CSD. The Pilot Regime allows both incumbents and new entrant DLT market infrastructure. This Pilot Regime is a pilot to test DLT as a means of settlement and representation of securities, and it is temporary and subject to a number of thresholds for each specific product (e.g., shares of issuers with market capitalisation less than €500 million or bonds or money market instruments with an issue size of €1 billion) and aggregate market value of all the DLT financial instruments of €6 billion. By 24 March 2026, ESMA will present a report to the Commission and, based on that, the Commission shall present a report to the European Parliament with an analysis of whether the Pilot Regime should be, for example, extended up to three years or to different products, be amended, made permanent or terminated.
Takeover activity in the Spanish market has continued over the past 12 months in line with the previous period. The main recent deals are the takeover bid announced by Siemens Energy AG over Siemens Gamesa, and the takeover bids launched by MFE over Mediaset, FCC Inmobiliaria over Metrovacesa and OHS over Zardoya Otis.
The exceptional applicability (due to the impact of the covid-19 pandemic in the market) of the provisions of Articles 137.2 and 137.3 of the SMA with respect to voluntary bids (requiring these to be made at an equitable price supported by an independent expert’s report) ceased to apply as from 12 March 2022.
Call options granted in favour of the issuer if a certain percentage of the aggregate principal amount of a relevant series of bonds is redeemed have now started to surge among Spanish regulated issuers (mainly banks). This type of options (also called ‘substantial purchase events’) were commonly used by corporate issuers, but not by regulated entities due to the limitations on early redemption envisaged in the relevant regulatory capital or loss absorption regulations applicable to this type of entity.
However, Spanish banks and other regulated issuers have started to include clean-up calls in their debt programmes and issuances. In order to avoid a potential breach or challenge of the regulatory capital/loss absorption requirements, the terms and conditions of the relevant instruments usually limit the ability to exercise this call having considered the minimum legal term for redemption (e.g., five years in the case of Tier 2 instruments and one year for MREL-eligible instruments).
In line with certain usual corporate issuers of hybrid securities in other jurisdictions (such as France and the Netherlands), some Spanish corporates have included or started to consider the inclusion of hybrid securities in their plain vanilla debt programmes, to facilitate issuances, given the current scenario of high volatility, and to reduce issuance windows.
In general, hybrid securities within the framework of a corporate issuer are securities that, although in principle behave as a bond (i.e., the investor lends money in return for regular interest payments), include specific rights for the issuer, such as the ability to defer coupon or principal payment. Hybrid securities are also subordinated liabilities in the event of insolvency of the issuer and have a distinct accounting and rating treatment to ordinary senior debt.
For the past few years, Tier 2-eligible instruments have usually included eligible liabilities event calls in their terms and conditions, whereby the issuer would be able to repurchase the instruments in the event they cease to be taken into account for the purposes of loss absorption ratios. However, the EBA has informally expressed reservations to certain banks and managers as to the inclusion of eligible liabilities event calls in capital instruments.
Given the very limited potential use of an eligible liabilities event call in this type of instruments, some managers have started to suggest the exclusion of these calls in Tier 2 instruments. This exclusion is not yet extended, but it may become market practice in the future, particularly if the EBA decides to express these reservations in a more formal way.
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