Debt Finance 2026 Comparisons

Spain’s debt finance market demonstrated considerable resilience in 2024 and into 2025, recovering from the tighter conditions that characterised the earlier phases of the rate-hiking cycle of the European Central Bank (ECB). Lending volumes remained below the highs of the post-pandemic period of 2021–22, but the market registered a material improvement in transaction activity across most asset classes. This recovery was supported by easing monetary policy and improving macroeconomic fundamentals. Inflation fell more quickly in Spain than in several other eurozone economies, contributing to an earlier recovery of borrower confidence.

Refinancing activity dominated the market for much of 2024 and has continued into 2025. A significant volume of leveraged finance transactions originating in the low-rate environment of 2020–22 approached maturity, requiring sponsors and corporate borrowers to address their capital structures in a higher-rate context. This so-called maturity wall drove both bank-led refinancings and a surge in private credit solutions. Mid-market and sub-investment-grade borrowers unable to access the broadly syndicated loan market on acceptable terms were the primary beneficiaries of this shift.

Infrastructure and renewable energy finance remained exceptionally active. Spain’s energy transition objectives, coupled with substantial EU funding available under the Recovery, Transformation and Resilience Plan, generated a strong pipeline of project finance mandates in solar, wind, green hydrogen and battery storage. Transaction structures became increasingly sophisticated to accommodate the requirements of both commercial lenders and public funding bodies.

Acquisition finance and leveraged buyout activity showed a measured recovery from the slowdown of 2023. Although the gap between vendor and buyer price expectations narrowed during 2024, high borrowing costs continued to compress leverage multiples and require greater equity contributions from sponsors. The technology, healthcare and consumer sectors attracted the most significant volumes of sponsor-backed acquisition finance.

The Spanish debt finance market features a layered and increasingly diverse set of participants, with roles that differ substantially depending on transaction size, risk profile and asset class.

Domestic banks continue to anchor the market, particularly for investment-grade lending, bilateral facilities and smaller mid-market transactions. These institutions benefit from deep borrower relationships, thorough knowledge of local legal and regulatory requirements, and the capacity to provide ancillary banking services. They tend to dominate the provision of revolving credit facilities and the arranger roles on syndicated loans where a domestic banking relationship is commercially important to the borrower.

International banks, including French, German, British and US institutions with established Spanish operations, play a significant role in larger syndicated transactions, cross-border acquisition finance and capital markets-linked structures. Their participation is particularly prevalent in high-value infrastructure and energy mandates, and in leveraged finance transactions originated by private equity sponsors. The willingness of international banks to compete aggressively for market share has historically contributed to tighter pricing and more borrower-friendly documentation on larger deals.

Direct lenders and private credit funds have expanded their presence in Spain considerably since 2022. Several firms have established dedicated origination capabilities in the Spanish market, focusing primarily on the mid-market segment (broadly, transactions with enterprise values between EUR50 million and EUR500 million). Unitranche facilities have become a standard product in this segment, frequently used to finance private equity buyouts. Private debt funds also play an increasingly important role in special situations and distressed financing, a dynamic that is expected to persist given ongoing regulatory capital constraints on European banks.

Spain’s debt finance market has not been immune to the geopolitical disruptions reshaping the European financing landscape since 2022. The ongoing war in Ukraine continues to exert indirect pressure on energy costs and supply chains, although Spain’s relatively modest direct trade exposure has limited the economic impact compared to some northern European markets. Paradoxically, the conflict has reinforced investor appetite for Spanish renewable energy assets by accelerating the reassessment of energy security across the continent.

The ECB’s rate-hiking cycle, which began in 2022, created a difficult financing environment for highly leveraged borrowers and compressed deal volumes in 2023. The easing cycle that commenced in mid-2024 has progressively improved conditions, though the base rate environment remains materially higher than the pre-2022 era. The transition away from Euro Interbank Offered Rate (EURIBOR)-linked floating rates has been orderly, and the market has adapted well to compounded overnight rates in relevant transaction types.

Escalating tensions involving Iran and the risk of disruption to Strait of Hormuz oil flows represent the most significant source of unquantified geopolitical risk at the time of writing. A serious escalation could drive oil and gas prices sharply higher, with direct consequences for inflation, central bank policy and borrowing costs across the eurozone. Spanish lenders and borrowers have begun incorporating scenario analysis around energy price spikes into their financial modelling, and certain project finance transactions in energy-intensive sectors now include specific force majeure and market disruption provisions.

Trade tensions and evolving tariff regimes – particularly in the context of US–EU relations and wider protectionist trends – are creating additional due diligence challenges for lenders financing industrial and export-oriented borrowers. Legal counsel are increasingly being asked to assess the resilience of borrowers’ supply chains and to determine whether tariff exposure should be addressed through targeted representations, undertakings or covenant protections. Given the persistence of geopolitical and trade policy uncertainty, these issues are likely to remain a structural feature of the lending market in the near-to-medium term.

Spain’s debt finance market encompasses a broad range of transaction types, reflecting the diversity of the Spanish economy and the sophistication of its financing ecosystem.

Acquisition Finance

Acquisition finance is one of the most consistently active segments of the market. These transactions typically involve senior secured term loans combined with revolving credit facilities, arranged to fund the acquisition of a target business by a corporate or private equity buyer. In sponsor-led transactions, documentation follows broadly Loan Market Association (LMA) conventions, with negotiation focused on financial covenants, equity cure rights and the scope of permitted baskets and carve-outs. Activity is closely correlated with private equity deal flow, which has remained resilient in the technology, healthcare and infrastructure-adjacent sectors.

Leveraged Finance

Leveraged finance encompasses a wider range of uses than pure acquisition finance, including recapitalisations, dividend recaps and refinancings of existing leveraged capital structures. The market predominantly uses floating-rate term loans priced at a margin over EURIBOR, rather than high-yield bonds, for transactions below approximately EUR300 million. Covenant-lite structures are common in the large-cap segment but remain less prevalent in Spanish mid-market transactions, where financial maintenance covenants are the norm.

Project Finance

Project finance is an area of significant prominence given Spain’s position as one of Europe’s leading renewable energy markets. Transactions in the solar and wind sectors are typically structured on a limited-recourse basis, with revenue visibility provided by long-term power purchase agreements or, in some cases, regulatory support mechanisms. Green hydrogen and energy storage projects represent an emerging frontier, bringing more complex technology risk profiles and innovative financing structures. International project finance banks, export credit agencies and multilateral development institutions play important roles alongside domestic lenders.

Infrastructure Finance

Infrastructure finance encompasses a broader range of assets than project finance, including toll roads, ports, airports and social infrastructure. Spain has an established track record in public-private partnership and concession-based finance. The domestic market for long-dated institutional debt – including financing from insurance companies and pension funds – has become increasingly sophisticated. The availability of EU blended finance instruments has further deepened the pool of capital for qualifying projects.

Asset-Based Lending

Asset-based lending remains a niche but growing product in Spain, historically less developed than in Anglo-Saxon markets. Structures secured against receivables, inventory or equipment are gaining traction among mid-market borrowers seeking more flexible liquidity solutions than traditional cash flow lending. The legal framework for security over receivables has been progressively clarified, making asset-based lending structures more bankable.

Real Estate Finance

Real estate finance covers both commercial real estate lending and residential development finance. Major urban markets – particularly Madrid and Barcelona – have seen sustained demand following a strong sectoral recovery. The Sociedad Cotizada de Inversión en el Mercado Inmobiliario (SOCIMI) structure (the Spanish equivalent of a real estate investment trust) continues to attract domestic and international institutional capital into commercial real estate. Lenders remain selective, with loan-to-value ratios and debt service coverage requirements that are more conservative than pre-crisis norms.

Securitisation

Securitisation remains an important tool for Spanish banks and specialty finance companies. The asset-backed securities and residential mortgage-backed securities markets continue to function, providing banks with balance sheet relief and investors with access to diversified Spanish credit risk. Spanish-originated paper features in many pan-European collateralised loan obligation (CLO) vehicles, and CLO formation backed by Spanish and European leveraged loans forms part of the broader European market.

Debt finance transactions in Spain follow a well-established structural framework aligned with domestic law and international market practice, particularly documentation influenced by LMA standards. Transactions typically involve co-ordination between the borrower, one or more lenders and a comprehensive security and intercreditor structure designed to allocate risk and protect creditor interests.

Most transactions are built around four core elements: a facility agreement governing the terms of the loan, a security package over the assets of the borrower group, intercreditor arrangements where multiple creditor classes are involved and guarantees provided by parent companies or subsidiaries. Each component must be structured in accordance with Spanish legal requirements.

A distinctive feature of Spanish financings is the importance of notarial documentation. Many security interests must be executed as public deeds and registered in the relevant public registry in order to be validly perfected and enforceable against third parties. These formalities may affect transaction timing and costs and must be factored into the conditions precedent timetable.

In leveraged acquisition transactions, financing is commonly raised at the level of a newly incorporated acquisition vehicle using a combination of sponsor equity and external debt. Following completion, structural steps such as mergers or debt push-down mechanisms are often implemented so that the operating assets and cash flows of the target group can be included within the security package.

The Spanish lending market offers a range of facility types tailored to borrower needs. Term loans are widely used in acquisition and project finance and may be structured either as amortising facilities or as bullet repayment instruments with limited amortisation during the life of the loan. Revolving credit facilities remain the principal liquidity management tool for corporates, allowing funds to be drawn, repaid and redrawn during the availability period. Other commonly used instruments include capital expenditure facilities, acquisition bridge facilities and bilateral loans.

Both syndicated bank loans and debt securities are widely used sources of financing. Syndicated loans offer flexibility and confidentiality, as terms can be negotiated directly with lenders and amendments may be implemented through majority consent mechanisms. They are typically priced on a floating rate basis and may include maintenance financial covenants. However, syndicated loans may involve administrative burdens linked to covenant testing and information undertakings, as well as costs associated with the perfection of security interests. The secondary market for loan participations is also generally less liquid than the bond market, particularly for smaller or unrated borrowers.

Debt securities provide access to a broader institutional investor base and may allow issuers to obtain longer maturities and fixed-rate funding. High-yield instruments are typically structured with incurrence-based covenants, offering greater operational flexibility. At the same time, bond issuances are subject to regulatory and disclosure requirements, and amendments to terms can be difficult once securities are widely distributed. Market access may also be more sensitive to investor sentiment and credit rating considerations.

The investor base in Spanish debt finance transactions has diversified significantly. Commercial banks remain central participants in syndicated lending, while institutional investors such as credit funds and structured finance vehicles have become increasingly active in leveraged loan markets. Development finance institutions play an important role in supporting financing for mid-market and infrastructure borrowers. In the bond markets, institutional investors are the primary participants, with retail involvement having declined following strengthened investor protection measures.

Debt finance transactions in Spain are documented through a combination of contractual instruments that reflect both international market practice and requirements derived from Spanish law. The documentation will vary depending on the size, structure and complexity of the transaction. It generally consists of a facility agreement supported by ancillary documents relating to security, guarantees, corporate approvals and regulatory compliance.

Facility Agreement

The facility agreement is the foundation of most debt finance transactions and regulates the core economic and legal terms of the financing. It sets out the amount of the loan, the conditions precedent to drawdown, the applicable interest rate and margin, repayment schedules, representations and warranties, undertakings (including financial covenants), events of default, and provisions governing amendments and waivers. Facility agreements in Spain frequently follow the structure and terminology of the LMA, particularly in transactions involving international banks or cross-border syndicates.

Security Documents

Alongside the facility agreement, transactions normally include a set of security documents designed to secure the borrower’s obligations under the financing. Depending on the nature of the assets involved, these may include mortgages over real estate, pledges over shares or participations in subsidiaries, pledges over bank accounts, and assignments or pledges of receivables. In asset-heavy financings, security may also extend to movable assets such as machinery or equipment through non-possessory pledges regulated under Spanish law. Each security document describes the secured obligations, the collateral provided and the enforcement rights of the secured creditors.

Guarantee Agreements

Where the borrower’s obligations are supported by third parties, guarantee agreements are also included in the documentation package. These guarantees are commonly granted by parent companies or subsidiaries within the borrower’s corporate group and typically take the form of joint and several personal or corporate guarantees. The guarantees are drafted to ensure enforceability under Spanish law, including waivers of certain defences available to guarantors under the Spanish Civil Code.

Intercreditor Agreements

In transactions involving multiple lenders, an intercreditor agreement (ICA) is frequently required. This document regulates the relationship among the different creditor groups and establishes rules regarding the ranking of claims, sharing of enforcement proceeds, standstill periods and voting thresholds for amendments or waivers. ICAs are particularly important in leveraged buyout and project finance structures where different tranches of debt carry different levels of seniority or security.

Hedging and Derivative Documentation

Debt finance transactions frequently include hedging arrangements where the borrower enters into interest rate or currency swaps to manage exposure arising from the financing. These agreements are typically based on standard forms published by the International Swaps and Derivatives Association (ISDA). They are linked to the loan documentation through cross-default provisions and are usually secured by the same collateral package as the underlying loan.

Compliance and Regulatory Documentation

All transactions include compliance and regulatory documentation covering anti-money laundering, sanctions, anti-corruption rules and financial reporting obligations. Borrowers are typically required to provide periodic financial statements, compliance certificates and other information to allow lenders to monitor their financial position and covenant compliance throughout the life of the loan.

Notarial Documentation

Certain documents are executed in notarial form, particularly where required to perfect security interests or facilitate enforcement. Notarial intervention is common in Spain because notarised documents – escrituras públicas – enable more efficient enforcement procedures under Spanish law and are necessary to register certain security interests in public registries. The timing of notarial execution and registration is a key item on the conditions precedent checklist in most Spanish transactions.

The composition of the lending group can significantly influence both the commercial terms and the legal structure of a loan facility in Spain. Although the core documentation framework often follows international standards, the preferences and risk profiles of different types of investors shape the negotiation of key provisions, including pricing, covenant packages, reporting obligations and security arrangements.

Commercial Banks

Traditional commercial banks remain the primary participants in many Spanish lending transactions. These institutions tend to adopt a conservative approach to risk and typically require a robust covenant package, including financial covenants such as leverage ratios, interest cover ratios or minimum liquidity thresholds. Banks also generally insist on detailed reporting obligations that enable close monitoring of the borrower’s financial performance. From a structural perspective, banks place significant emphasis on obtaining a comprehensive security package over the borrower’s key assets and, where appropriate, guarantees from group companies.

Institutional Investors and Private Credit Funds

Institutional investors and private credit funds have become increasingly active in the Spanish lending market, particularly in mid-market leveraged finance. These investors may adopt a more flexible approach to covenant structures, agreeing to covenant-lite or covenant-loose arrangements that reduce the frequency or scope of financial testing. However, this flexibility is typically reflected in higher pricing, additional fees or stronger economic protections. Private credit funds may also seek enhanced control rights, including more restrictive provisions governing disposals, additional indebtedness or changes in ownership.

Syndicated Facilities Involving Cross-Border Lenders

When international banks or institutional investors participate in Spanish transactions, the documentation often incorporates additional provisions to address regulatory requirements or legal considerations in multiple jurisdictions. These may include representations and undertakings related to sanctions compliance, tax matters and regulatory capital treatment. Governing law and dispute resolution provisions may also be negotiated to accommodate the preferences of foreign lenders, although Spanish law is generally chosen to govern the security package where collateral is located in Spain.

Cross-border loan documentation involving Spanish borrowers or collateral typically includes several jurisdiction-specific provisions designed to ensure compliance with Spanish law and facilitate the enforceability of the financing arrangements.

Governing Law and Security

While cross-border financing agreements are often governed by English law or another internationally recognised legal system, security documents relating to assets located in Spain must be governed by Spanish law. This reflects the principle that security interests are governed by the law of the jurisdiction where the collateral is located. Cross-border transactions therefore frequently involve a combination of governing laws: the main facility agreement is governed by foreign law, and the security documents are governed by Spanish law. This split must be carefully managed in the documentation to avoid inconsistencies between the two sets of instruments.

Notarial and Registration Requirements

Certain security interests – particularly mortgages over real estate and pledges over certain registered assets – must be formalised in a notarial deed and registered in the relevant public registry in order to be valid and enforceable against third parties. Cross-border loan documentation therefore includes precedent conditions requiring the execution of notarial deeds and the completion of registration procedures before the financing becomes fully effective. Delays in notarial execution or registration can affect closing timelines and should be planned for carefully.

Corporate Benefit and Financial Assistance

Cross-border transactions involving Spanish companies must address corporate law limitations that may affect guarantees and security granted by group companies. The documentation typically includes representations confirming that the granting company has received adequate corporate benefit and that the transaction has been duly authorised by its corporate bodies. This is particularly relevant in group structures where subsidiaries guarantee the obligations of their parent. In addition, the financial assistance prohibition must be carefully analysed in leveraged transactions to ensure that guarantees or security granted by Spanish subsidiaries do not violate the restrictions set out in the Spanish Companies Act.

In Spain, lenders typically seek a comprehensive guarantee and security package designed to provide effective protection in the event of borrower default. The scope of the package depends on the nature of the transaction, the assets available as collateral and the negotiating strength of the parties. In larger or more structured transactions, lenders generally aim to obtain security over substantially all material assets of the borrower and, where appropriate, guarantees from other companies within the borrower’s group.

Types of Collateral

The assets commonly used as collateral in Spanish debt finance transactions include real estate, shares or participations in subsidiaries, bank accounts, receivables, intellectual property rights and certain movable assets such as machinery or equipment. The availability and suitability of each type of collateral will depend on the borrower’s business model and the legal requirements applicable to each asset category. Lenders typically conduct a thorough asset review at the due diligence stage to identify material assets and assess any encumbrances or restrictions on their use as collateral.

Types of Security Interests

The types of security interests available under Spanish law are relatively diverse. Mortgages are commonly used to secure obligations over real estate and certain registered assets. Pledges are widely used for movable assets such as shares, receivables and bank accounts. Assignments of receivables and fiduciary arrangements may also be used in certain structures to strengthen the lender’s security position. Each type of security interest is subject to specific formality and perfection requirements.

• Real estate mortgages must be executed by way of a notarisation and registered with the Spanish Land Registry in order to be validly perfected and enforceable against third parties.
• Pledges over movable assets may require execution in notarial form and registration with the relevant public registries, depending on the nature of the underlying collateral.
• Pledges over quotas in a limited liability company (sociedad de responsabilidad limitada – SL) must be documented in a notarial deed and recorded in the company’s share register book to be fully effective.
• Guarantees are typically documented in writing. Notarisation is not generally required unless the guarantee must be registered in a public registry or forms part of a broader notarised security package.

Without completion of the applicable perfection requirements, a security interest will not be enforceable against third parties or in the event of the borrower’s insolvency. The timing and cost of perfection steps – including notarial fees and registry charges – must be factored into transaction planning.

Several legal and structural considerations must be taken into account when structuring guarantees and security arrangements in Spanish debt finance transactions. These are particularly important in syndicated or cross-border financings where multiple creditors rely on a co-ordinated enforcement framework.

Security Agent and Parallel Debt

Spanish law recognises the concept of a security agent acting on behalf of a group of lenders, allowing a single entity to hold and enforce security interests for the benefit of all participating lenders. This structure simplifies administration and enforcement in syndicated transactions. However, because Spanish law does not recognise the trust concept as understood in common law jurisdictions, cross-border transactions frequently use a parallel debt mechanism. Under this structure, the borrower acknowledges a separate and independent payment obligation owed to the security agent, which mirrors its obligations to the lenders. This allows the security agent to enforce security in its own name while effectively representing the interests of the syndicate.

Upstream and Cross-Stream Guarantees

Upstream and cross-stream guarantees – granted by subsidiaries to secure obligations of their parent or affiliated companies – require particular care under Spanish law. The granting company must receive some form of economic or strategic benefit from the transaction in order for the guarantee to be consistent with its corporate interest. If a guarantee is granted without a legitimate corporate purpose, it may be challenged by shareholders or creditors and potentially declared void. Directors must therefore ensure that the granting of security or guarantees is in the best interests of the company and does not expose it to disproportionate risk. Corporate approvals and board resolutions are required before any company provides guarantees or security in favour of lenders, and guarantee limitation provisions are commonly included in facility agreements to address this constraint.

Financial Assistance

The financial assistance prohibition applicable to Spanish companies is a significant structural constraint in leveraged acquisition transactions. Spanish law prohibits certain forms of financial support for the acquisition of shares in a company, particularly where a subsidiary provides financing, guarantees or security to facilitate the purchase of shares in its parent. Compliance with these restrictions is carefully analysed in leveraged buyout structures to ensure that the financing arrangements do not violate statutory prohibitions. Unlike some other European jurisdictions, Spain does not provide for a whitewash procedure that would permit financial assistance with shareholder approval.

Guarantee Fees and Corporate Benefit

Although Spanish law does not mandate the payment of guarantee fees, it is common in practice for guarantors within a corporate group to receive some form of compensation for assuming credit risk. The payment of such fees can help demonstrate that the guarantee arrangement provides an economic benefit to the guarantor and therefore satisfies the corporate benefit requirement. The level and structure of guarantee fees should be documented carefully and, in the case of intra-group arrangements, priced on arm’s length terms in accordance with applicable transfer pricing rules.

Intercreditor arrangements – known in international practice as ICAs – play an essential structural role in corporate and project financing transactions: they organise and govern the legal and economic relationships among multiple creditors who coexist in relation to the same debtor. ICAs are necessary because the general rules of the legal system – the pooling of claims and the principle of par conditio creditorum – are insufficient to address the complexity of debt structures of this nature.

From a legal standpoint, the ICA is a commercial contract of an atypical nature, lacking a specific regulatory framework under Spanish law, constructed under the principle of contractual freedom recognised in Article 1255 of the Civil Code and by reference to the models of the LMA. Its provisions are intended to take precedence over the underlying financing agreements.

Structurally, the contract establishes a system of cascading subordination: at the first level are the senior creditors; at the second, the mezzanine creditors, who agree to defer the recovery of their debt in exchange for higher financial returns; and at the final level, the intragroup creditors and the partners or shareholders of the debtor company.

Among its typical provisions, the following stand out:

• the waterfall structure determines the priority in the distribution of cash flows, ensuring that senior creditors are paid in full before junior creditors;
• payment restrictions and the standstill clause limit payments to subordinated creditors in the event of default, granting senior creditors control over the process for a specified period;
• the turnover clause requires a subordinated creditor who receives a payment in violation of the agreed order to return it to the security agent for distribution in accordance with the established ranking – a clause of high relevance given that Spanish law does not automatically recognise contractual subordination vis-à-vis third parties in an insolvency scenario;
• the security agent acts as a central administrative figure, safeguarding and enforcing the security interests and channelling decisions through the instructing group, composed of a majority of senior creditors; and
• the buy-out rights clause, which allows subordinated creditors to acquire the senior debt at par upon certain events of default, thereby protecting themselves from an enforcement action that would wipe out their position.

From an insolvency perspective, Law 16/2022 incorporated Article 435.3 of the Consolidated Text of the Insolvency Act, which expressly recognises the validity of relative subordination agreements in insolvency proceedings. This applies provided that such agreements do not cause harm to third parties and that the debtor is a party to the agreement.

Under Spanish law, there are two types of claim subordination, each with distinct rules and effects: statutory subordination and contractual subordination.

Legal Subordination

Article 281 of the Consolidated Text of the Insolvency Act establishes the categories of claims that are subordinated by operation of law, including:

• claims filed late;
• claims of persons with a special relationship to the debtor;
• claims for interest;
• claims for fines and penalties; and
• claims of those who have acted fraudulently in the insolvency proceedings.

This subordination applies automatically in insolvency proceedings, regardless of the parties’ intentions.

Contractual Subordination

The freedom of contract recognised in Article 1255 of the Civil Code allows creditors to agree among themselves on a priority order different from that provided by law. In the context of structured finance, the ICA articulates this subordination through a system of tiers – senior, mezzanine and intragroup – that regulates the order of payment and access to collateral regardless of the formal rank of such collateral. Essentially, this is a relative subordination agreement: a creditor agrees that its claim will not be collected until another has been fully satisfied, generally in exchange for a higher financial return.

The interaction between these two types of agreements becomes complicated in insolvency situations. Until the reform introduced by Law 16/2022, only absolute subordination agreements – those in which a creditor subordinates its claim to all others – were recognised in insolvency proceedings. Relative subordination, characteristic of agreements between creditors, took effect exclusively within the internal sphere of the parties, obliging them to redistribute the amounts received once the insolvency proceedings were concluded. This was precisely the approach taken by Commercial Court No 1 of A Coruña in the well-known Martinsa-Fadesa case, where the termination of the agreement between creditors was dismissed on the grounds that its effects operated outside the insolvency proceedings and without prejudice to the estate.

This situation was altered by the new Article 435.3 of the Recast Insolvency Law (Texto Refundido de la Ley Concursal – TRLC), which expressly recognises the enforceability of relative subordination agreements in insolvency proceedings, provided that they do not cause harm to third parties and that the debtor is a party to the agreement. However, there remains a doctrinal debate as to whether this recognition also extends to out-of-court restructuring plans, an issue on which the legislature has remained silent and which Order 184/2024 of Madrid Commercial Court No 6 has begun to resolve in the affirmative, by approving a restructuring plan in which the formation of classes was carried out taking into account the provisions of a relative subordination agreement.

In the field of corporate finance, guarantees serve as the primary mechanism for protecting creditors against debtor default. Spanish law distinguishes between security interests (which are secured by specific assets) and personal guarantees (which involve the assets of a third party), each with different enforcement procedures.

Security Interests: Pledge and Mortgage

The real estate mortgage is the quintessential security interest in debt finance transactions. Its enforcement is governed by the Civil Procedure Act (Ley de Enjuiciamiento Civil – LEC) and may be carried out in three ways: ordinary enforcement proceedings, direct mortgage foreclosure proceedings – which are more streamlined, as they allow for direct seizure of the mortgaged property without the need for a prior judgment – and extrajudicial sale before a notary, provided this has been expressly agreed upon in the deed. In syndicated transactions, the mortgage is typically established in favour of the collateral agent, who acts on behalf of the syndicate of lenders.

A pledge, for its part, may be established over movable property, corporate interests, shares, receivables or bank accounts. In structured finance transactions, it is particularly common to establish a pledge over shares or corporate interests of the debtor company or its subsidiaries, as well as a pledge over receivables arising from project contracts. Enforcement may be carried out judicially in accordance with the LEC or, if so agreed, through extrajudicial sale or direct appropriation, under the terms provided by Law 5/2015 on the promotion of business financing – and, for financial guarantees, by Royal Decree-Law 5/2005.

Financial Collateral

Royal Decree-Law 5/2005, reforming financial collateral, transposed Directive 2002/47/EC into Spanish law and introduced a special regime for pledges of financial assets – cash, negotiable securities and financial instruments – established between certain eligible counterparties. This regime is characterised by its flexibility: it allows for immediate extrajudicial enforcement through sale, appropriation or set-off, without the need for judicial intervention and with full enforceability against third parties and in insolvency situations, making it the preferred instrument in capital market transactions and sophisticated syndicated financing arrangements.

Personal guarantees

Guarantees and sureties are the most common forms of personal guarantees in debt finance transactions. A surety, as defined in the Civil Code, creates an accessory obligation whereby the surety is liable for the performance of the principal obligation in the event of the debtor’s default. In practice, financial institutions typically require joint and several sureties, waiving the rights of exculpation and division, which allows the creditor to pursue the guarantor directly without first having to exhaust remedies against the principal debtor. In complex corporate transactions, personal guarantees are frequently structured as Anglo-Saxon-style guarantees, configured as independent obligations (on demand) that allow for immediate enforcement upon simple demand, regardless of any defences the principal debtor might raise.

The recognition and enforcement of foreign court judgments in Spain in the field of corporate finance is governed by a hierarchical system of sources, which operates on a tiered basis depending on the origin of the judgment and the applicable international instruments.

Judgments From European Union Member States

Civil and commercial judgments issued by courts of another Member State are recognised and enforced in Spain almost automatically under Regulation (EU) No 1215/2012 (Brussels I Recast), applicable to proceedings initiated after 10 January 2015. It is sufficient for the court of origin to complete the standard certificate provided for in Annex I and for the judgment to be translated into Spanish, without the need for a prior recognition procedure. Recognition may only be refused in the specific cases set forth in Article 45, notably where the judgment is contrary to public policy or where the defendant was unable to defend themselves.

Judgments Issued by Non-EU Member States

The applicable regime varies depending on existing treaty relationships. European Free Trade Association (EFTA) member states – Norway, Iceland and Switzerland – are subject to the 2007 Lugano Convention, which establishes a system analogous to that of the Brussels I Regulation. For other states, one must refer to the bilateral agreements signed by Spain – including, among others, those with China, Colombia, Mexico and Morocco – or, where applicable, to Hague Convention No 16 on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, provided that the state in question has expressly acceded to it.

The Exequatur Procedure

In the absence of an applicable treaty – a situation of particular relevance in debt finance transactions governed by English or New York law – Law 29/2015 on international legal co-operation in civil matters applies. The application for exequatur is filed with the Courts of First Instance – or the Commercial Courts when the decision concerns commercial matters – with the mandatory representation of an attorney and a court agent. Once the application is accepted, notice is served on the defendant to file a response within 30 days, and the court issues a ruling by means of an order subject to appeal. The application shall be denied if:

• the judgment is contrary to public policy;
• the judgment was rendered in violation of the rights of the defence;
• the foreign court lacks jurisdiction according to criteria of reasonable connection; or
• the judgment is irreconcilable with another judgment rendered or recognised in Spain.

In Spain, several pre-insolvency and restructuring mechanisms exist alongside formal insolvency proceedings. Each may affect, to varying degrees, the ability of lenders to enforce a loan, guarantee or security interest. Understanding how these mechanisms interact is essential for any lender with Spanish exposure.

Restructuring Plans

Restructuring plans are regulated in Book II of the Revised Text of the Spanish Insolvency Law (Texto Refundido de la Ley Concursal), following the 2022 reform transposing Directive (EU) 2019/1023 (the “Restructuring and Insolvency Directive”). They are available when the company is at risk of insolvency, in a situation of imminent insolvency or already insolvent. A restructuring plan may include:

• haircuts and deferred payments on existing debt;
• debt-to-equity conversions;
• modification of guarantees and security arrangements;
• sale of business units; and
• cross-class cram-down binding dissenting creditors.

At the debtor’s request, a court may suspend individual enforcement actions – including over secured assets – for an initial period of up to three months, extendable to six. During this period, affected creditors may not initiate or continue enforcement proceedings. If the plan is approved by the required majorities and judicially confirmed, it may impose haircuts or deferrals on dissenting creditors. Secured claims may be affected up to the value of the collateral, with any excess treated as an ordinary unsecured claim.

Notification of Commencement of Negotiations

Before or alongside a restructuring plan, the debtor may notify the court that negotiations with creditors have begun. The principal effects are temporary protection against individual enforcement actions, suspension of enforcement necessary for business continuity and a shield against the obligation to file for formal insolvency. For lenders, the practical consequence is a temporary suspension of enforcement rights in respect of affected credits.

Private Refinancing Agreements

Purely contractual refinancing agreements continue to exist in practice alongside the statutory framework. Their defining features are private negotiation, binding effect only on signatories and the absence of any automatic cram-down. A lender that signs the agreement is bound by its revised terms; a lender that does not sign may enforce its rights unless judicial confirmation is sought under a formal restructuring plan.

Corporate Structural Modifications

Mergers, spin-offs, global transfers of assets and liabilities, and transformations are regulated by the Corporate Structural Modifications Law, transposed into the Spanish Companies Act in 2023. Lenders have a right to object in certain cases and may request additional guarantees. These procedures do not automatically suspend enforcement, and the credit continues against the successor entity. Although they are not a formal insolvency procedure, structural modifications may indirectly affect a creditor’s position if assets are reorganised across entities.

Lenders’ Rights to Enforce in Insolvency

The declaration of insolvency generally results in a stay of individual enforcement actions against assets forming part of the insolvency estate. Enforcement of security interests such as mortgages and pledges may be stayed where the encumbered asset is necessary for the continuation of the debtor’s business activity. Where the asset is not necessary for the business, a secured creditor may initiate or continue separate enforcement proceedings. Where the asset is necessary, enforcement is stayed until a restructuring plan is approved, liquidation is opened or the relevant statutory period has elapsed.

Non-insolvent guarantors do not automatically benefit from the enforcement stay, except in specific circumstances – for example, where a restructuring plan is approved with third-party release effects. This distinction between the insolvent debtor and non-insolvent guarantors is an important structural consideration in the design of security packages for Spanish transactions.

Claw-Back Risks

The insolvency administrator may challenge acts detrimental to the insolvency estate carried out within the two years prior to the declaration of insolvency, even in the absence of fraudulent intent. Typical risk scenarios include:

• granting security to secure pre-existing unsecured debt;
• early payments or payments made on non-ordinary terms; and
• transactions with related parties, which are subject to stricter presumptions.

Spanish law distinguishes between irrebuttable presumptions of detriment and rebuttable presumptions where the debtor or beneficiary may demonstrate that the transaction was not detrimental to the estate. Refinancings and restructuring plans that meet the statutory requirements may benefit from specific protection against avoidance actions.

Equitable Subordination

Spanish law does not recognise a standalone doctrine of equitable subordination as known in common law jurisdictions. It does, however, provide for a statutory regime of subordinated claims. The following are treated as subordinated by operation of law:

• claims held by related parties, especially to the debtor, including significant shareholders, directors and group companies;
• accrued interest, penalties and surcharges;
• contractually subordinated claims; and
• any other claims expressly designated as subordinated by statute.

Subordinated claims are paid after secured, privileged and ordinary claims and in practice frequently receive no distribution in liquidation scenarios.

Order of Priority of Payments

In liquidation, the general order of distribution is as follows:

• estate claims, comprising insolvency expenses, post-petition wages and post-commencement financing;
• secured claims carrying special privilege, up to the value of the collateral;
• generally privileged claims;
• ordinary unsecured claims; and
• subordinated claims.

A secured creditor has priority over the proceeds of the encumbered asset up to its value. Any shortfall is classified as an ordinary unsecured claim and ranks accordingly. This treatment makes accurate collateral valuation a critical consideration in structuring security packages for Spanish transactions.

Withholding Tax on Interest Payments

Spain generally does not impose withholding tax on interest paid by a Spanish borrower to a non-resident lender resident in an EU member state, or in a jurisdiction with which Spain has concluded a double tax treaty covering interest income. This framework makes Spain a relatively straightforward jurisdiction for cross-border lending. Where no exemption applies, a 19% withholding tax may be levied, subject to potential treaty reductions.

A specific anti-avoidance rule applies where interest is paid to accounts held in noncooperative jurisdictions. In such cases, withholding tax may increase to 47% unless the borrower demonstrates that the transaction has genuine commercial substance. Lenders operating through such jurisdictions should obtain specific advice when structuring Spanish financings.

Although Spanish law does not formally recognise a “qualifying lender” concept, LMA-based facility agreements typically include tax gross-up and tax indemnity provisions to allocate withholding risk. The scope of these provisions is often a key negotiation point in transactions involving non-EU lenders.

Stamp Duty

Loan agreements executed as private documents are generally not subject to stamp duty. However, security interests documented in notarial deed form and registered in public registries – particularly real estate mortgages and certain non-possessory pledges – may trigger stamp duty (actos jurídicos documentados – AJD), typically ranging between 0.5% and 1.5% of the maximum secured amount depending on the autonomous community.

Following reforms introduced in 2018, the lending entity is generally treated as the taxable person in mortgage transactions. The tax impact of notarial security packages must therefore be carefully assessed, particularly in multi-asset or multi-jurisdictional financings.

Interest Deductibility

Interest expenses are generally deductible for Spanish corporate income tax purposes where incurred in the course of business activity. In practice, deductibility is subject to several limitation rules.

The earnings stripping rule limits the deduction of net financial expenses to the higher of EUR1 million or 30% of tax EBITDA, with excess amounts carried forward. Additional restrictions may apply under thin capitalisation rules where related-party debt exceeds certain leverage thresholds. Anti-hybrid rules may also deny deductions where interest payments result in double deductions or deductions without corresponding taxation in the lender’s jurisdiction.

Transfer pricing principles require intra-group loans to be priced on arm’s length terms, and the Spanish tax authorities closely scrutinise related-party financing structures. Tax structuring is therefore a central consideration in leveraged acquisitions, particularly in relation to the use of Spanish holding companies and tax consolidation regimes.

Transfer Pricing in Intra-Group Financings

Intra-group loans must be priced on arm’s length terms. The Spanish tax authorities apply the OECD Transfer Pricing Guidelines and actively scrutinise related-party financing arrangements, particularly where the interest rate, tenor or guarantee structure deviates from what an independent lender would accept. Documentation requirements are substantial for groups above the relevant size thresholds, and Spanish entities must maintain contemporaneous transfer pricing documentation supporting the arm’s length nature of intra-group loans.

Where interest paid to a direct shareholder that does not qualify as a related party exceeds the Official Tax Rate published annually by the Spanish tax authorities, the excess is reclassified as a deemed dividend. This reclassification triggers potential withholding tax exposure and is a common structuring risk in mezzanine and payment-in-kind (PIK) financing arrangements involving shareholder loans.

Licensing Requirements for Lenders

The granting of credit on a professional basis in Spain is a regulated activity generally reserved for authorised credit institutions or entities passported under EU banking legislation. Providing loans without the required authorisation may expose lenders to criminal liability.

In practice, certain non-bank entities – including securitisation vehicles and some EU-authorised alternative investment funds – may operate outside the strict scope of the banking monopoly. However, the regulatory perimeter is not always clearly defined, and specific advice is typically required before establishing lending programmes.

Regulatory Considerations for Foreign Lenders and Debt Funds

EU-authorised lenders may operate in Spain through passporting arrangements without establishing a local branch. Non-EU lenders must generally obtain authorisation from the Bank of Spain (Banco de España) or structure their investments through EU vehicles or bond subscription mechanisms that fall outside regulated lending activity.

Debt funds face particular structuring considerations, as direct loan origination may be restricted. As a result, participation through bond instruments or other capital markets structures has become an established market practice.

Financial Assistance and Corporate Benefit

Spanish law prohibits companies from providing financial assistance for the acquisition of their own shares or quotas. This restriction represents a significant structuring constraint in leveraged transactions and may render non-compliant arrangements void, with potential liability for directors.

Directors must also act in the corporate interest of the company. Guarantees or security granted by subsidiaries in support of group financings may be challenged where no adequate corporate benefit can be demonstrated. These considerations are particularly relevant in holding company structures and upstream guarantee scenarios.

Securities Law and Recent Regulatory Developments

Several regulatory developments are relevant to the structuring and availability of debt finance in Spain. The implementation of the EU Capital Requirements Regulation and associated Basel III reforms has continued to influence the appetite and capacity of Spanish banks for leveraged and structured lending, contributing to the growth of the private credit market as banks optimise their balance sheet usage. The Bank Recovery and Resolution Directive framework, implemented in Spain through the Law on the Recovery and Resolution of Credit Institutions, has introduced bail-in mechanics that affect the treatment of senior unsecured debt issued by Spanish credit institutions.

The EU’s Sustainable Finance Action Plan continues to generate new regulatory requirements relevant to debt finance. The EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation impose classification and disclosure obligations on financial market participants, and the growing market for sustainability-linked loans and green bonds in Spain is increasingly shaped by these frameworks. Lenders and borrowers should monitor developments in relation to the proposed Corporate Sustainability Due Diligence Directive, which may impose new supply chain and governance obligations with implications for credit risk assessment and covenant structuring in sustainability-linked transactions.

Execution Formalities

In Spain, a loan agreement may be executed in a private document. However, security interests in rem require a public deed in order to be registered and enforceable against third parties. The formality requirements vary by type of security:

• a real estate mortgage requires a notarial deed and constitutive registration at the Land Registry;
• a non-possessory pledge requires a public deed and registration in the Movable Property Registry; and
• a pledge over shares in an LLC requires a public deed and an entry in the shareholders’ register book.

Without registration, the security is not enforceable against third parties. In cross-border transactions, powers of attorney granted abroad must be apostilled, officially translated and, in certain cases, notarised before a Spanish notary. This can affect closing timelines and should be planned for carefully in transaction timetables.

Restrictions on Secured Obligations

Spanish security law is governed by the principle of specificity: the secured obligation must be sufficiently identified, and the security instrument must clearly describe what is being secured. All-monies clauses are permissible but must be carefully drafted to comply with this requirement. In mortgages, a maximum secured amount must be stated and broken down by reference to principal, ordinary interest, default interest and costs. Future obligations may be secured, but they must be determinable and, in certain cases, subject to a maximum cap.

Financial Assistance and Corporate Benefit

Under the Spanish Companies Act, a capital company may not advance funds, provide loans, offer guarantees or furnish security to facilitate the acquisition of its own shares or quotas by a third party. In a leveraged buyout, this means the target company may not guarantee acquisition debt if doing so would constitute prohibited financial assistance. This is a critical structuring constraint in leveraged acquisitions and must be addressed at the outset of any deal involving a Spanish target.

Although Spanish law does not contain an express corporate benefit test in common law terms, directors must act in the corporate interest and avoid unjustified patrimonial detriment to the company. Intra-group guarantees may be challenged if no reasonable corporate benefit can be demonstrated, making this a key due diligence consideration in group financing structures.

Labour Restrictions and Works Council

Financings involving restructurings, sales of business units or significant spin-offs may trigger obligations to inform and consult the works council under the Workers’ Statute. Signing a loan agreement does not, in itself, require works council involvement. However, where the transaction involves material labour reorganisation, compliance with consultation procedures is required and can affect transaction timelines. This is particularly relevant in leveraged acquisitions and debt restructurings with operational consequences.

Use of Proceeds and Regulatory Considerations

There are no general restrictions on the use of loan proceeds under Spanish law, provided funds are not used for illegal purposes. Financial institutions must comply with anti-money laundering regulations, and complex or high-value transactions may require additional reporting. In strategic sectors – such as energy, defence and telecommunications – administrative authorisations and restrictions on foreign direct investment may apply. Non-EU lenders should take specific advice on applicable restrictions before committing to transactions in these sectors.

Financial Collateral and Netting

Royal Decree-Law 5/2005, implementing the Financial Collateral Directive, provides a privileged regime for financial collateral arrangements. Pledges over cash, securities and financial receivables benefit from this regime, which permits direct appropriation by the secured creditor and protects close-out netting mechanisms from challenge in insolvency. In cross-border financings involving financial collateral, this framework is a key structuring tool and should be considered early in the documentation process.

Registration System and Priority

Priority between competing security interests in Spain is generally determined by order of registration. The registry system is strong and formalistic, and registration has constitutive effect for real estate mortgages. Formal defects in security documents may invalidate the security or subordinate its ranking to subsequently registered interests. Stamp duty (impuesto sobre actos jurídicos documentados) may apply to certain security interests executed in public deed form and subject to registration. The tax impact must be assessed carefully in complex or multilayered security structures.

Avoidance Risk in Subsequent Insolvency

Security interests and other financial arrangements may be challenged by an insolvency administrator if the debtor subsequently becomes insolvent. Acts that are detrimental to the insolvency estate and carried out within the two years prior to the declaration of insolvency are potentially voidable, even without proof of fraud. Security granted shortly before insolvency is particularly vulnerable if the legal requirements for protected refinancings are not met. Structuring transactions to qualify for the statutory safe harbour available to approved refinancings and Restructuring Plans is therefore an important risk management consideration.

Cross-Border Recognition and Governing Law

Within the EU, Regulation (EU) 2015/848 on insolvency proceedings determines jurisdiction and provides for automatic cross-border recognition. Outside the EU, Spanish private international law rules apply, and exequatur proceedings may be required for the enforcement of foreign judgments. In international financings, it is common to use English or New York law for the main facility agreement whilst governing security over Spanish assets by Spanish law.

This fragmentation between the law of the facility agreement and the law of the security package requires careful co-ordination in documentation and is one of the most practically significant features of cross-border transactions with a Spanish component. The most critical aspects to address are:

• notarial and registration formalities governing the creation and perfection of security;
• the principle of specificity in the description of secured obligations;
• financial assistance limitations in leveraged acquisition structures;
• the strong priority protection afforded by the registration system;
• sensitivity to avoidance actions in the two-year period preceding insolvency; and
• co-ordination between the foreign governing law of the loan agreement and Spanish law governing the security package.