Hot Topics
Single Resolution Board –Banco Popular
Last month, the Single Resolution Board, the European Central Bank's newly created bank oversight authority, stepped in to declare that Banco Popular was "failing or likely to fail". This resolution set into motion the swift sale of Popular to Santander overnight for the price of €1. This was the first time that these powers have been used by the European Central Bank and the speed with which the sale was carried out (news broke overnight) is in stark contrast to a number of bank bailouts that took place during the financial crisis, including that of Bankia here in Spain. The main goal of the new process is to protect depositors and to try to maintain a troubled financial institution as a going concern.
As a result, Banco Popular customers woke up to discover that they were now customers of the Banco Santander group, which overnight became Spain's largest bank by lending volume. On the other hand, Popular's shareholders and junior bondholders became aware that their holdings had been entirely written off. As such, focus has now shifted to how Popular's (former) shareholders and creditors can seek recourse (if any). We wait to see how the impact of this decision will affect the loan market, in particular whether the experience here in Spain will have a bearing on how financial institutions who fall into difficulties are treated elsewhere in Europe.
Re-cast Insolvency Regulation
The Recast Insolvency Regulation (Regulation (EU) No. 2015/848) entered into force on June 26 2017. The once controversial decision by the UK not to include schemes of arrangement as a pre-insolvency proceeding under the Regulation may now, in light of Brexit, prove to be a sensible one. Schemes can continue to be used by European insolvent companies and may be recognised in their home countries post Brexit. This is not because they are covered by the Recast Insolvency Regulation, which will presumably be no longer applicable, but under the rules of the law applicable to the finance documents subject to the relevant scheme. This leaves an opening for schemes to continue to be used across Europe as an effective restricting tool.
Spanish Loan Market Developments
LMA Madrid / Hot Topics
This May saw Madrid hosting the annual LMA conference. Discussions included the current hot topics in the Spanish market and a look ahead to trends over the coming year. The growing trend of private placement within the Spanish loan market was of particular interest. Banks are increasingly acting solely as arranger in transactions and are responsible for putting clients in contact with investors, rather than lending themselves.
This is something that we have seen over the last few years here as more and more investment funds enter the direct lending market in Spain. Our colleagues in the rest of Continental Europe have also noted the growing trend, in particular in Germany, France and Italy, where debt funds' offerings have become more favourable with interest rates often at around 6 per cent. Here in Madrid we have recently worked with a number of funds lending under English law across a range of transactions including; real estate finance, project finance, refinancing and leveraged buy outs. Banks continue to move away from the direct lending market as regulations tighten and market uncertainty remains, therefore we expect funds to continue to fill the gap and take advantage of the wide range of opportunities available here in Spain and throughout Continental Europe. We look forward to continuing to work together with these funds.
