The private credit market has continued to grow across Europe over the last 12 months, although the pace and depth of activity vary significantly between jurisdictions. Private capital has consolidated its role as a relevant source of financing for companies, sponsors and investors seeking alternatives to traditional bank lending, particularly in transactions requiring flexibility, speed of execution or a more tailored approach to risk.

This trend is also visible in Spain, where private capital has grown significantly in recent years. In line with broader European and international trends, the Spanish private credit market has continued to expand, with an increase both in the number of transactions and in the aggregate amounts financed.

Despite the uncertainty of recent months, including geopolitical tensions and a more cautious investment environment, private credit continues to strengthen its position as a complement to traditional bank financing. This reflects a broader diversification of corporate financing sources across Europe, with borrowers increasingly considering private debt alongside bank loans and public market products.

In Spain, private credit activity has also been supported by a relatively stable macroeconomic environment and resilient economic growth. These conditions have contributed to continued lender interest, particularly in mid-market transactions and in situations where borrowers require bespoke financing solutions.

In terms of sectors, private credit lenders have been active across a broad range of areas, including corporate financing, acquisition finance, special situations, real estate, project finance and technology. Certain private debt structures are also beginning to reflect wider developments in capital markets and alternative financing platforms, including digitalisation and, in specific cases, tokenisation-related models, although these remain at an early stage and are not yet a mainstream feature of the market.

Public debt markets, including broadly syndicated loans and high-yield securities, have remained competitive with private credit in Europe over the last six months, particularly for larger borrowers with access to institutional markets and stronger credit profiles.

Recent market stabilisation, together with the gradual reduction of interest rates, has made syndicated lending and high-yield products more attractive in pricing terms in certain transactions. This has also been visible in Spain, where traditional bank financing and public market products continue to play an important role, especially for larger companies and more standardised financing needs.

However, private credit remains competitive where borrowers require greater flexibility, certainty of execution or a lender willing to assume risks that public markets or traditional banks may be less prepared to take. This is particularly relevant in complex refinancing situations, special situations, acquisition finance, bespoke corporate financing and transactions where timing or confidentiality is critical.

Some refinancing of private credit facilities with public debt market products has been observed where market conditions and borrower profiles have allowed for more competitive pricing. This has been particularly relevant where companies that originally relied on private credit during more challenging market conditions have subsequently been able to access cheaper or more widely syndicated financing alternatives.

That said, this does not suggest a displacement of private credit. Rather, the market is becoming more segmented: public debt markets remain attractive for borrowers able to access them on favourable terms, while private credit continues to offer a valuable alternative for transactions requiring a more tailored financing solution.

Acquisition finance (in the absence of a distressed situation) is generally funded through bank lending rather than private credit. In this space, private credit remains primarily focused on mezzanine or other subordinated financing structures.

Spain remains a very friendly jurisdiction for private credit and major challenges or obstacles that could hinder its development are not envisaged. Compared to other jurisdictions where private credit may face stricter regulatory constraints or licensing requirements, Spain offers a particularly flexible framework, allowing both domestic and international investors to operate without a specific lending licence.

In Spain, private credit is no longer confined to private equity-backed deals. Founder-led businesses are increasingly accessing private debt solutions as part of their capital structure strategy. However, its penetration into listed companies remains limited.

Spain’s recurring revenue financing market has gained meaningful traction over the past few years, especially in IT and other sectors built around predictable, subscription-driven cash flows – notably B2B technology, digital platforms and software. By contrast, in real estate, private credit tends to be concentrated in development-stage financings, with stabilised assets generating recurring rental income (such as built-to-rent portfolios) still more typically financed through traditional bank debt.

The Spanish private credit market remains predominantly mid-market focused. Transaction sizes are generally concentrated in the lower and mid-market, with many transactions falling within single-digit million to sub-EUR100 million levels, depending on the borrower, sector and financing structure.

That said, larger tickets are increasingly being seen in transactions involving international lenders, sponsor-backed borrowers or cross-border structures. International funds continue to deploy capital into Spanish mid-market opportunities, while domestic sponsors and borrowers increasingly use cross-border financing solutions where appropriate.

Regulatory Framework: Structural Flexibility in the Spanish Market

One of the defining features of the Spanish private credit market is the absence of a specific licensing regime for non-bank lenders (save for certain specific sectors). Under Spanish law, lending activity per se does not require a banking licence, provided that the lender does not engage in deposit-taking from the public – an activity reserved to credit institutions supervised by the Bank of Spain – or other regulated activities. This regulatory architecture affords private credit providers a significant degree of structural flexibility compared to more tightly regulated European jurisdictions. In particular, private lenders are not subject to the capital adequacy, liquidity and prudential requirements applicable to banks, allowing for greater agility in underwriting, structuring and execution.

Additionally, the recent reform of the Spanish insolvency law – particularly the strengthening of restructuring plans – has enhanced the attractiveness of the jurisdiction for private credit providers specialising in special situations and distressed scenarios. The combination of restructuring tools and regulatory neutrality has positioned Spain as an increasingly relevant venue for opportunistic and complex credit strategies.

Certain restrictions apply in connection with consumer credit and real estate financing (see 2.1 Licensing and Regulatory Approval).

The regulatory treatment of private credit is not fully harmonised across Europe and depends largely on national law. In general terms, the analysis will depend on:

• the nature of the lender;
• the type of borrower;
• the characteristics of the loan; and
• whether any regulated activity is being carried out in addition to the granting of credit.

In Spain, “private credit” is not a standalone regulated activity. There is no specific lending licence required merely to grant corporate loans, and lending is not, as such, an activity reserved to credit institutions, provided that there is no deposit-taking from the public or other regulated activity involved in the structure. Accordingly, most private credit activity is conducted outside the banking perimeter.

Likewise, no licence or authorisation is generally required to take the benefit of security over assets located in Spain, whether in rem or personal, or to enforce that security, subject to certain specific security interests and regulated sectors.

Where lending is carried out by credit institutions, supervision falls under the Bank of Spain, within the framework of the Single Supervisory Mechanism, together with the European Central Bank for significant institutions. By contrast, non-bank lenders, whether domestic or foreign, do not require a Spanish banking licence solely to originate corporate loans.

Regulatory implications may nevertheless arise depending on the type of borrower or the nature of the credit. For example, consumer lending is subject to specific conduct, transparency and borrower-protection rules, while mortgage lending is governed by dedicated legislation imposing additional formalities and standards.

Private credit activity in Spain is commonly carried out by Spanish alternative investment funds (AIFs), typically closed-ended funds investing in loans under Law 22/2014, as well as by foreign AIFs, often Luxembourg or Irish vehicles managed by authorised EU AIFMs. In the case of Spanish funds, the National Securities Market Commission (CNMV) supervises the management company. Where foreign AIFs operate in Spain, marketing into Spain and the provision of investment services may be subject to CNMV supervision under the applicable EU passporting or national private placement regimes.

Across Europe, there is no single regulator specifically supervising private credit activity as a standalone sector. Regulatory supervision generally depends on:

• the structure through which the activity is carried out;
• the type of lender involved; and
• whether the relevant vehicle or manager is otherwise regulated under national or EU financial services rules.

In Spain, there is likewise no overarching regulator specifically supervising private credit activity. Regulatory supervision may arise only in the limited cases referred to in 2.1 Licensing and Regulatory Approval – eg, where the activity is carried out by a regulated fund or management company subject to CNMV supervision, or by a credit institution subject to the Bank of Spain and, where applicable, the European Central Bank.

Across Europe, restrictions on foreign investment in private credit funds are generally limited, although the position may vary depending on:

• the investor;
• the fund structure; and
• the nature of the underlying assets or borrowers.

Spain does not impose general limitations on foreign participation in private credit funds. However, enforcement scenarios leading to a change of control over, or the acquisition of a participation in, a regulated borrower may fall within the scope of foreign investment screening or sector-specific authorisation regimes, particularly in strategic industries and/or listed companies.

Private credit providers are not generally subject to the same prudential regime as banks merely because they provide corporate credit. The applicable compliance and reporting obligations will depend on:

• the structure used;
• the regulatory status of the lender; and
• whether any additional regulated activities are carried out.

In Spain, private credit lenders are not subject to a prudential regime equivalent to that applicable to banks. However, where they are structured as vehicles or managers supervised by the CNMV, they must comply with applicable incorporation, conduct and reporting requirements.

In addition, private credit providers may be subject to anti-money laundering obligations, sanctions compliance and tax reporting duties, including, where applicable, reporting obligations before the Spanish State Tax Administration Agency.

There is no specific regulatory concern directed at club lending among private credit providers. The Spanish National Commission on Markets and Competition (CNMC) has not to date expressed any particular concern regarding private credit as a sector requiring particular monitoring for abusive or collusive practices.

Nevertheless, certain potential risks must be taken into account. For instance, the sharing of commercially sensitive information should be avoided, as well as agreements that could restrict competition in pricing or interest rates, or the proliferation of highly stable and repetitive club structures or exclusionary conduct. However, to date, no public investigations have been initiated in Spain in relation to these matters.

In Spain, lenders typically adapt flexible structures depending on the nature of the borrower, the size of the transaction and the risk profile.

The following structures are commonly found.

• Unitranche financing – structured through a single facility agreement with one tranche. Senior and mezzanine debt may be combined within the same tranche.
• Senior and mezzanine structures – also common, involving a senior secured lender and a mezzanine lender subordinated to the senior debt but ranking ahead of equity. In these transactions, private credit is often positioned in the subordinated tranche, particularly where banks are no longer willing or able to assume additional exposure to the same borrower. Subordination may be contractual (typically governed by an intercreditor agreement) or structural (through multi-layered holding structures that effectively rank creditors at different levels of the corporate chain).
• Delayed draw facilities – involving committed but undrawn tranches, particularly in multi-phase projects. This allows the borrower to draw funds as needed, reducing initial financing costs and lender risk. Private credit is typically not involved in this type of financing.

Likewise, revolving credit facilities are less commonly found in private credit transactions.

True club deals remain atypical in private credit. When transactions involve more than one lender, risk allocation is generally achieved through back-to-back structures (including sub-participations or analogous arrangements), rather than through fully syndicated facilities in the traditional banking sense.

Unlike certain other jurisdictions, private credit transactions in Spain are documented in a manner largely consistent with traditional bank financing structures.

The core documentation typically includes the following.

• Facility agreement – constitutes the principal document governing the loan terms, including tranching, interest mechanics, financial covenants and other key provisions.
• Security documents – usually comprising a standard security package that may include possessory pledges, real estate mortgages and personal guarantees (frequently structured as first-demand guarantees). Other forms of security, such as chattel mortgages or non-possessory pledges, are less frequently used in practice.
• Intercreditor agreements – commonly required where both senior and subordinated lenders participate in the transaction. These agreements regulate, among other matters, voting thresholds, payment waterfalls and enforcement mechanics. They are also typically used in first-out/last-out structures.
• Irrevocable powers of attorney – often granted in connection with security arrangements, enabling the secured party or the security agent to take actions necessary for the perfection, extension or enforcement of security. Although structured as irrevocable, established Spanish case law recognises that such powers may be revoked in certain circumstances, including where revocation is exercised in good faith.
• Ancillary documentation – including fee letters and related side arrangements.

Certain documents that would be unusual in a traditional banking transaction may, however, be encountered in private credit structures. This includes, for instance, call options over the underlying assets.

In addition, private credit lenders may, in some cases, require the implementation of so-called “double LuxCo” holding structures to enhance the enforceability and effectiveness of share pledge security. While such structures have proven useful in particular scenarios, they are not a market standard and remain transaction-specific rather than systematically required.

While documentation in Spain continues to be negotiated largely on a transaction-by-transaction basis, the increasing sophistication and internationalisation of the market has driven to a greater harmonisation and execution efficiency.

As noted in 2.1 Licensing and Regulatory Approval, private credit financing and the taking of security do not require a banking licence or specific regulatory authorisation in Spain. That said, limitations arise in the context of certain types of security rights. In particular, private credit lenders may not qualify to become beneficiary of the security set out in Royal Decree-Law 5/2005, which – subject to specific requirements – permits the direct appropriation of certain pledged financial collateral in enforcement scenarios.

Similarly, private credit providers are generally unable to benefit from so-called floating mortgages under Article 153 bis of the Spanish Mortgage Law, which allow security to be granted over a plurality of present and future obligations. Such structures are reserved for regulated credit institutions.

There is no general legal regulation limiting the use of funds granted under a private loan, except for the restrictions mentioned in 5.4 Restrictions on the Target and 5.3 Downstream, Upstream and Cross-Stream Guarantees.

There are no general legal restrictions preventing a borrower or sponsor from repurchasing debt issued in the context of a private loan, provided that the contractual terms are complied with.

The most significant recent development affecting financial documentation concerns the reinforcement of lenders’ positions in insolvency scenarios following the latest reform of the Spanish insolvency law, which introduced restructuring plans. That said, while the reform has enhanced the restructuring framework and creditor protection mechanisms, its impact on standard financing documentation has been relatively limited and has not required material structural changes to market precedents. This reform has positioned Spain among the most advanced jurisdictions in terms of the sophistication of restructuring mechanisms available to private lenders, aligning the framework with the expectations of international credit investors and opening the door to more assertive strategies, including loan-to-own transactions.

Private credit providers are increasingly participating in subordinated tranches. This segment allows sponsors to increase leverage, while enabling private credit to achieve higher returns.

Various structures can be found, such as the following.

• Pure mezzanine – subordinated to senior debt.
• Unitranche with first-out/last-out split – the last-out tranche operates as hybrid subordinated debt within a unitranche structure. Interest and principal payments are structured so that the last-out tranche is paid after the first-out tranche. Senior security is shared, but payment priority is defined in an intercreditor agreement.
• Warrants – generally used only in the context of venture debt, but not generally used in the market.

Subordinated debt typically features looser financial covenants, is frequently unsecured or secured only on a junior basis behind senior debt and carries a higher margin than senior facilities – sometimes incorporating payment-in-kind (PIK) interest.

Where mezzanine lenders benefit from a pledge over the shares of the borrower group, senior lenders will generally agree, under the intercreditor arrangements, to permit a change of control resulting from enforcement of that share security.

In sponsor-backed acquisitions, HoldCo structures are also common. These usually involve security at the holding level, such as a pledge over the shares of the target company or over subordinated shareholder debt. Due to Spanish financial assistance restrictions, acquisition finance structures cannot typically rely on security granted by the target company itself at closing, although various post-closing debt pushdown mechanisms may be implemented to optimise the security package.

PIK instruments are used in the European private credit market, particularly in subordinated, mezzanine, HoldCo and special situations financings, where the borrower may need to preserve cash during the life of the loan.

In the Spanish private credit market, PIK loans are relatively common, particularly in transactions featuring a bullet or balloon repayment structure for the principal amount.

Private credit facilities do not, per se, require scheduled amortisation during the life of the loan, although amortisation may be agreed depending on the borrower’s cash-flow profile, leverage and overall credit risk.

Call protection is commonly expected by private credit providers, although the specific mechanics vary depending on the market, the type of financing and the borrower’s credit profile.

In Spanish private credit facilities, it is customary to include make-whole protection for a period of 12 to 24 months from utilisation, generally calculated by reference to the interest that would have been payable during the protected period in the absence of prepayment. True non-call structures, however, remain atypical in Spain.

A less frequent mechanism involves granting the lender a right of first offer or a right to match any bona fide refinancing offer received from a third party, preserving the lender’s opportunity to remain in the transaction.

Regarding domestic lenders (see also 4.3 Tax Concerns for Foreign Lenders), payments of interest to private credit providers are normally subject to withholding tax as the withholding exemption on interest is limited to bank lenders. This withholding is creditable against the corporate income tax of the lender, and it is possible to obtain a refund where the corporate income tax debt of the lender is lower than the amount withheld. That said, lenders typically structure their investments through international vehicles that reduce or mitigate withholding tax exposure.

The taking of security (eg, by way of a mortgage on a Spanish property) may be subject to stamp duty at the rate approved by the Autonomous Region in which the property is located.

Spanish VAT will only apply to the extent the recipient of the services (ie, the lender or the counterparty, as the case may be) is established in Spain for Spanish VAT purposes. Under the Spanish VAT rules, any fees charged to a recipient established in Spain will be subject to 21% Spanish VAT, except where an exemption applies. In this regard, services related to the granting or the negotiations of loans are fully exempt from Spanish VAT.

Foreign lenders are normally structured through qualifying fully exempt treaty jurisdictions or through EU lenders that may apply the domestic exemption on interest paid to EU lenders. As per the latest developments concerning the position of the tax authorities and the courts, the application of the exemption to EU lenders requires (although it is not expressly stated in the regulations) that the lender is the beneficial owner of the interest. According to the Spanish courts, the concept of beneficial owner is implicit in the domestic exemption and is the one developed by the CJEU, which is connected to the abuse of rights. According to the CJEU, an abuse of rights may only result from obtaining an advantage from EU law by artificially creating the conditions that are necessary to gain access to a tax benefit. These developments should prompt the review of structures involving EU lenders.

Secured Assets

In addition to the typical security interests mentioned in 3.2 Key Documentation, it should be noted that the underlying assets over which security is granted may vary significantly. Common examples include:

• possessory pledges over shares or quotas (acciones or participaciones);
• mortgages over real estate;
• non-possessory pledges over, among others, machinery or installations; and
• possessory pledges over all types of receivables, most commonly those arising from agreements, insurance policies and bank accounts.

Requirements for the Valid Creation of Security

Each type of security has its own specific requirements for valid creation.

• Possessory pledges require the transfer of possession of the pledged asset to the secured party. In the case of pledges over receivables, this is typically effected through notification to the counterparty. For pledges over quotas of limited liability companies (sociedades de responsabilidad limitada), the pledge must be recorded in the company’s shareholders’ registry book and a certificate issued by an authorised attorney confirming such record must be delivered, as well as the annotation of the pledge in the ownership deeds of the quotas. If the pledge is granted over shares in a public limited company (sociedad anónima), an additional legal requirement is the delivery of the share certificate (título multiple) to the secured party.
• Chattel and real estate mortgages and non-possessory pledges require registration in the relevant Spanish public registry (ie, the Land Registry for real estate mortgages, or the Movable Assets Registry for chattel mortgages and non-possessory pledges). For a security interest to be registered in a Spanish public registry, it must be granted in the form of a public document, whether as a notarial deed (póliza) or a public deed (escritura pública), as applicable.
• Personal guarantees only require the valid contractual consent of the guarantor.

Lastly, it should be noted that security interests governed by Catalan foral law may be subject to certain additional requirements.

Costs

Security interests – whether registrable or not – are executed in the form of a public document before a Spanish notary. The notary is typically appointed by the borrower, and notarial fees are usually agreed between the borrower and the notary in accordance with applicable tariff rules.

Real estate mortgages are subject to stamp duty (AJD), which may reach up to 2% of the maximum secured liability. Non-possessory pledges may also trigger stamp duty; however, this is often mitigated by documenting the pledge in a notarial deed (póliza) rather than in a public deed (escritura). Stamp duty is calculated by reference to the maximum secured liability – ie, the aggregate amount of the secured obligations benefiting from full ranking and priority vis-à-vis other creditors. Accordingly, this amount is typically negotiated on a case-by-case basis and commonly ranges between 115% and 130% of the principal amount.

Finally, real estate mortgages may require a valuation report to be issued in accordance with specific statutory and technical requirements. As a matter of market practice, the associated valuation costs are generally borne by the borrower.

Timing

Where security is subject to registration – such as a mortgage or a non-possessory pledge – completion of the registration process may take several months.

By contrast, for security interests not requiring registration, the relevant formalities are typically completed at closing, ensuring that the full security package is effectively in place from the outset of the transaction.

Collateral Package for a Private Credit Transaction

Other than as explained in 3.3 Restrictions on Foreign Direct Lenders, there are generally no major differences between the security package requested by a bank and that required by a private credit.

Floating charges or similar universal security interests are not treated in the same way across European jurisdictions. While certain common law systems recognise broad security over present and future assets, other jurisdictions require security to be granted over specific assets or categories of assets.

Spanish law does not recognise universal or floating charges in the manner familiar in certain common law jurisdictions. Security must instead be granted over specifically identified assets or categories of assets in accordance with applicable statutory requirements.

As a result, private credit providers in Spain typically require fixed security over key assets. Where necessary, such security can be structured so as not to unduly interfere with the ordinary course of business of the security provider, in a manner that seeks to achieve a commercial effect similar to international floating charge structures.

In European financing transactions, downstream, upstream and cross-stream guarantees are generally possible, but their validity and enforceability depend on the corporate law rules of the relevant jurisdiction. The main limitations usually relate to:

• corporate benefit;
• directors’ duties;
• financial assistance;
• capital maintenance; and
• in distressed scenarios, potential claw-back risk.

In Spain, corporate guarantees granted between entities within the same group are subject to certain restrictions. Directors are required to protect the corporate interest of the company. In this context, upstream or cross-stream guarantees may raise concerns where the guarantor is not a direct beneficiary of the financing or appears to receive no consideration in return. The main risk is that the guarantee could be challenged, including through claw-back actions, if it is considered detrimental to the guarantor.

Notwithstanding the above, prevailing legal doctrine and Spanish case law, although not entirely settled, accept that upstream and cross-stream guarantees may be valid under the compensatory benefit theory, provided that they are granted in the interest of the group on a proportionate basis or that appropriate consideration is received in return.

As a mitigating measure, it is standard practice to obtain corporate resolutions from the guarantor confirming that the guarantee is in its corporate benefit.

In acquisition finance transactions, Spanish financial assistance rules must also be taken into account. The target company and, in certain cases, other group companies may be restricted from granting guarantees or security in connection with the acquisition of the target’s own shares or quotas. (See 5.4 Restrictions on the Target.)

Financial assistance rules are a key consideration in European acquisition finance, although their scope and consequences depend on the law of each jurisdiction. In general terms, these rules may restrict the ability of a target company to provide loans, guarantees, security or other support for the acquisition of its own shares or equity interests.

Under Spanish law, the financial assistance prohibition restricts a company from advancing funds, granting loans, providing security or otherwise assisting a third party for the purpose of acquiring its own shares, in the case of public limited companies, or quotas, in the case of limited liability companies.

Article 150 of the Spanish Companies Law applies to public limited companies and establishes a broad prohibition on financial assistance, subject to limited statutory exceptions. Article 143 applies to limited liability companies and imposes an equivalent restriction, drafted in similarly strict terms.

Where the target grants security to secure debt incurred for its own acquisition, such security would generally fall within the scope of the prohibition and may be declared null and void, without prejudice to the potential liability of the directors involved.

In practice, Spanish transactional structuring has developed mechanisms to mitigate this risk. Prevailing legal doctrine and market practice recognise that a subsequent leveraged merger, typically between the acquisition vehicle and the target, or other structural modifications carried out in accordance with corporate law safeguards may, under certain conditions, neutralise the financial assistance concern.

However, this mechanism is not a universally applicable solution, as legal uncertainties remain regarding its scope, limits and the precise circumstances in which courts would ultimately uphold the structure. Other debt push-down mechanisms, although more complex, are more commonly used in the market.

Other restrictions affecting the granting of security and guarantees in European financing transactions depend on the law of the relevant jurisdiction and may include corporate approvals, notarial and registration requirements, stamp duty, claw-back risk, retention of title rules, anti-assignment provisions and, in some jurisdictions, employee consultation requirements.

In addition to the requirements outlined in 5.1 Assets and Forms of Security, the main requirements, formalities or barriers in Spain in relation to the granting of security include the following.

• Shareholders’ approval is required where the asset over which security is granted qualifies as an essential asset of the company, pursuant to Article 160(f) of the Spanish Companies Law.
• The creation of certain security interests may entail notarial and registration fees, as described in 5.1 Assets and Forms of Security.
• Stamp duty may arise in connection with mortgages, chattel mortgages and non-possessory pledges, although, in the case of non-possessory pledges, stamp duty can often be mitigated or avoided depending on the form of execution. (See 5.1 Assets and Forms of Security.)
• Potential claw-back actions should also be considered in the context of insolvency proceedings or even outside formal insolvency, where financings or security interests granted in fraud of creditors may be declared void.

In Spain, although retention of title is recognised by law in certain cases, it is not the usual security mechanism in private debt transactions.

Contractual non-assignment clauses are also valid under Spanish law. It is standard practice for the borrower not to be permitted to assign its position without the lender’s consent, while the lender is generally free to assign its position. Unlike in bank financings, where the lender’s assignment may be subject to certain restrictions, such as prohibitions on assignment to competitors or certain distressed funds unless an event of default has occurred, in private credit financings the assignment clause is more commonly unrestricted.

Unlike in some other jurisdictions, the participation of works councils or similar employee representative bodies is not required in Spain for the creation of security interests.

The release of security in European financing transactions is generally governed by the law applicable to each security interest. As a result, the formalities required to release security will depend on:

• the type of security granted;
• the asset concerned; and
• whether the security has been registered or notified to third parties.

Under Spanish law, security interests are accessory to the secured obligations. As a matter of law, repayment in full of the secured obligations entails the release of the related security.

Notwithstanding this principle, market practice requires compliance with certain formalities to ensure the effective cancellation of the security, particularly where it has been registered or notified to third parties. As a general rule, the same formalities observed for the creation of the security must be followed for its release. For example, where a mortgage has been registered with the Land Registry, a public deed of cancellation must be executed before a notary and filed with the relevant registry. Similarly, if a pledge over receivables was notified to the relevant counterparty upon creation, a corresponding release notice should also be delivered. Irrevocable powers of attorney granted in connection with the security are usually revoked by means of a public deed.

In refinancing scenarios, where new financing is intended to discharge existing secured debt, the release of the pre-existing security is typically structured through escrow or conditional release arrangements, often referred to in practice as an “escritura cero”. This mechanism ensures that the cancellation of the existing security becomes effective simultaneously with the full repayment of the refinanced secured obligations.

Multiple Liens

Spanish law permits the creation of multiple security interests over the same asset in the context of mortgages – broadly, security over real estate and certain categories of registrable movable assets. Although the extension of this principle to pledges has been subject to doctrinal debate, market practice generally accepts that successive pledges over the same asset are valid, subject to ranking rules.

For registrable security interests, priority is determined by the date of registration rather than the date of execution. In an enforcement scenario, proceeds are applied in accordance with ranking: first to satisfy the first-ranking secured creditor, with any surplus then applied to subsequent ranking creditors in order of priority.

The ranking of security interests may be contractually agreed and subsequently amended by the parties. However, any formal alteration of ranking in respect of mortgages requires registration and triggers additional stamp duty, which in practice often discourages such modifications.

Subordination Methods

In addition to statutory ranking rules, Spanish law accepts both contractual and structural subordination. Contractual subordination, typically implemented through intercreditor agreements, is generally upheld under the principle of freedom of contract and may be effective inter partes and, subject to insolvency rules, in formal proceedings. Spanish insolvency law ultimately governs distribution through its statutory classification of claims (privileged, ordinary and subordinated), which may limit the effect of purely contractual arrangements, except if the subordination is vis-à-vis all creditors generally.

In practice, structural subordination – achieved by placing senior debt at operating company level and mezzanine debt at HoldCo level – is more commonly used and considered more robust. Senior lenders in Spain typically require mezzanine debt to sit structurally above them rather than at the same corporate level.

Priming claims in financing transactions are generally determined by the insolvency and priority rules of the relevant jurisdiction. In most European jurisdictions, certain statutory claims may rank ahead of ordinary unsecured creditors, although they will not necessarily displace a properly created and perfected security interest over specific collateral.

Under Spanish insolvency law, certain claims benefit from general privilege, including, inter alia, the following:

• claims against the estate (créditos contra la masa);
• certain labour-related claims;
• certain tax credits, up to 50%; and
• up to 50% of claims arising from interim financing (financiación interina) or new financing (nueva financiación) granted within a restructuring plan, subject to statutory requirements.

These categories primarily affect the ability of ordinary unsecured creditors to be paid. However, they do not displace a properly created and perfected security interest, which generally entitles the secured creditor to be satisfied with priority from the proceeds of enforcement of the relevant collateral, up to the value covered by the security. Any remaining portion of the claim that exceeds the value of the security will be treated in accordance with the classification described in 7.2 Waterfall of Payments.

Cash Pooling

Cash pooling arrangements are uncommon in the context of private credit transactions and are often restricted by private lenders.

Where a cash pooling structure is in place and group liquidity is centralised in a single account held in the name of the borrower, the private lender may take security over the credit balance of that account. The existence of the cash pooling arrangement does not, in itself, affect the borrower’s legal entitlement as account holder to the funds standing to its credit.

This is without prejudice to any intra-group claims that other group companies may have against the borrower in respect of the reallocation or reimbursement of funds transferred under the cash pooling arrangement; claims which do not affect the validity of the security granted in favour of the private lender.

Hedging Agreements

Likewise, in Spain it is not common for private credit transactions to include hedging obligations. In addition, only credit institutions are authorised to offer hedging instruments. In any event, where a hedging agreement is put in place, it will typically benefit from the same security package as the loan and be integrated into the intercreditor agreement.

Except in large syndicated banking transactions, the use of a collateral agent or security agent is not a practice in Spanish-law governed security structures. Instead, security interests are granted directly in favour of all lenders on a parallel basis, rather than being held by an agent on their behalf.

Where used, agency structures may introduce a degree of legal uncertainty under Spanish law, given the absence of a trust concept equivalent to that recognised in common law jurisdictions and the resulting challenges in fully aligning parallel debt and security agent constructs with Spanish legal principles.

As a matter of Spanish law, an assignment of the lender’s position under the facility agreement automatically entails the transfer of the ancillary security interests, without the need to re-create or re-perfect the underlying security.

However, where the security is subject to registration – such as mortgages or non-possessory pledges – the assignment may need to be registered to ensure full opposability vis-à-vis third parties and full enforceability by the assignee. In addition, the assignment may trigger stamp duty implications.

To mitigate these practical and cost-related burdens, market participants may resort to alternative transfer mechanisms, including sub-participations or other secondary market structures, which allow economic risk transfer without requiring formal assignment of the security package.

A non-bank lender may enforce a guarantee once the debtor defaults on the secured obligation, provided all legal and contractual requirements are met and no limitations arising from bankruptcy proceedings or specific agreements. This applies to both real guarantees and personal guarantees.

Enforcement may be judicial or extrajudicial, depending on the nature of security, the contractual terms, and applicable law.

Enforcement of Real Securities

For real securities, enforcement requires that the security has been validly constituted and, where necessary, registered in the relevant public registry, supported by an enforceable title (typically a notarised deed).

• Mortgage – may be enforced through special judicial foreclosure proceedings or, if agreed, by extrajudicial sale before a notary. Registration is required in both cases.
• Pledge – the creditor may retain the pledged asset and, upon non-payment, realise it in accordance with the agreement or applicable legal provisions.

Enforcement of Personal Guarantees

In the case of a surety, the lender may take action against the guarantor in the event of default by the principal debtor on the secured obligation, provided that the contractual and procedural requirements are met. A surety bond may be enforced judicially as a valid title if it complies with existing legislation.

Enforcement in the Context of Bankruptcy and Insolvency

The debtor’s declaration of insolvency entails significant restrictions, most notably the suspension of pending enforcement actions and the prohibition on initiating new ones until one year has passed since the declaration, provided that the liquidation phase has not been commenced within that period.

Summary

In summary, the effectiveness of a guarantee in Spain depends on its specific nature, the relevant contractual agreements, compliance with legal requirements and the insolvency context, and may be enforced through judicial or extrajudicial means, as appropriate.

Spanish law enables parties to choose a foreign law under which a contract shall be governed, in accordance with Regulation (EC) 593/2008 (Rome I), provided the chosen law is expressly or clearly inferable and does not contravene mandatory rules, public order or the protection of the weaker party. If the content of the chosen foreign law cannot be determined, Spanish law shall apply subsidiarily.

Foreign judgments and arbitral awards may be enforced without a review of the merits of the case, as long as they meet the requirements for recognition. However, a distinction is made between those judgments handed down within and outside the European Union.

Judgments Handed Down by a European Union Country

Civil and commercial judgments handed down in EU member states are recognised and enforced directly in accordance with Regulation (EU) 1215/2012 (Brussels I bis), without the need for an exequatur and through a simplified procedure comparable to that for a Spanish judgment.

Judgments Handed Down by a Country Outside the European Union

Third-country judgments require the exequatur procedure in accordance with Spanish law, unless an applicable international treaty exists between Spain and the country of origin. In the absence of such a treaty, Spanish law states that final foreign judgments may be recognised and enforced in Spain upon completion of the exequatur procedure.

Whether a foreign private lender can exercise rights in Spain arising from a loan agreement or guarantee depends on compliance with various requirements and overcoming any legal and practical constraints. It is essential to examine the following in detail:

• international jurisdiction;
• applicable law;
• compliance with formal and registration requirements;
• the possible application of consumer protection rules and usury limits;
• the need for recognition of foreign judgments; and
• possible regulatory and public order restrictions.

The duration of enforcement proceedings is not predetermined, as it is contingent on a number of factors including the following:

• the workload of the courts;
• the complexity of the case;
• the co-operation of the parties involved; and
• the nature of the assets in question.

The process can take anywhere from a few months to years. The involvement of specialised professionals can accelerate the process.

The costs mainly consist of lawyers’ and solicitors’ fees, as well as management expenses and, where applicable, those arising from the realisation or restructuring of assets, with costs varying according to the complexity of the case, the value at stake, and the duration of the proceedings.

Enforcement is often used as a pressure tactic to encourage debtors to agree to refinancing or restructuring agreements, given its public impact.

However, debtors are increasingly resorting to pre-bankruptcy or bankruptcy instruments to suspend or avoid enforcement, such as notifying the court of the opening of a negotiation phase with creditors in order to reach a restructuring plan that will enable them to overcome a situation of insolvency.

On the other hand, creditors also tend to assess the potential risk to their reputation before taking enforcement action.

The Spanish restructuring framework aligns with the broader European trend towards preventative restructuring mechanisms, reflecting the implementation of the EU Restructuring Directive. This approach places Spain as one of the most sophisticated European jurisdictions in modernising their insolvency regimes to prioritise business continuity, creditor protection, and overall market stability.

To that end, it distinguishes between pre-insolvency restructuring mechanisms, focused on restructuring plans, and insolvency proceedings (concurso de acreedores), which are more formal and structured judicial proceedings, although in practice they often end in liquidation.

Pre-Insolvency Stage

At the pre-insolvency stage, a relevant tool is the notice to the court of the commencement of negotiations for the possible homologation of a restructuring plan. That notice opens a negotiation period with court protection and, during that time, individual enforcement actions over assets and rights necessary for the continuation of the business are stayed, and no new enforcement actions may be commenced over those assets. In addition, at this stage a restructuring expert may be appointed to provide technical assistance in the negotiation and preparation of the plan.

Insolvency Proceedings

Insolvency proceedings must be commenced when the company is in a situation of actual or imminent insolvency. From the declaration of insolvency, individual creditor actions become subject to a collective framework, so that individual judicial and extrajudicial enforcement actions in respect of pre-insolvency claims are stayed and no new ones may be commenced, subject to the exceptions provided by law. In the case of secured creditors, enforcement is also limited where the encumbered asset is necessary for the business, and, in any event, it becomes subject to insolvency rules.

The insolvency proceedings are conducted under the direction of the court, while the management and control of the estate are entrusted to the insolvency administration, an independent body appointed by the court and subject to its supervision. The debtor does not always lose its management powers. In voluntary insolvency proceedings, the usual position is that the debtor retains those powers under an intervention regime, subject to the supervision and authorisation of the insolvency administration, whereas in involuntary insolvency proceedings their suspension may be ordered and the insolvency administration then assumes direct management.

In insolvency proceedings, Spanish law first distinguishes between claims against the estate and insolvency claims.

• Claims against the estate are those that the law attributes to the proceedings themselves and to their administration, and they are paid with priority, usually as they fall due, including, among others, insolvency costs and expenses, post-commencement wages and the costs necessary for the preservation or liquidation of the insolvency estate.

Insolvency claims, in turn, are subject to a strict statutory ranking.

• Special privilege claims – claims secured over specific assets or rights, such as a mortgage or a pledge. These claims are satisfied out of the proceeds obtained from the encumbered asset, up to the value of that asset.
• General privilege claims – also rank in priority within the insolvency, but not because they attach to a specific asset; rather, the law grants them priority against the debtor’s estate as a whole. This category includes, within the statutory limits, certain employment claims and certain public law claims.
• Ordinary claims – these are neither privileged nor subordinated and, in practice, include a large proportion of unsecured trade and financial claims, to be paid pro rata.
• Subordinated claims – such as interest, penalties and claims held by persons specially related to the debtor.

In accordance with this ranking, each category must be paid in full before moving to the next and, if there are insufficient assets within the same class, payment is made on a pro rata basis among the creditors of that class.

The most agile route in trying to overcome insolvency and preserve the business as a going concern is, generally, the filing with the court of a notice of the opening of negotiations for the court confirmation of a restructuring plan. That notice opens a protected period of three months, extendable by up to a further three months, so the negotiation framework under court protection may generally last for up to approximately six months. In that context, creditors’ recovery prospects are usually better than in ordinary insolvency proceedings, although the plan may impose significant haircuts and deferrals.

If no going-concern solution is achieved, the ordinary route is formal insolvency proceedings. Although the law contains a one-year time reference, where the proceedings run through all of their phases there is no strict legal time limit, and the actual duration depends on the size of the perimeter, the possibility of an early sale or, alternatively, a piecemeal liquidation, and the level of litigation, so that in practice the average duration is close to four years.

Precisely because of that lower expectation of recovery in insolvency proceedings, Spanish insolvency legislation has strengthened pre-insolvency restructuring mechanisms in recent years, promoting agreements that preserve the company’s viability even if this entails sacrifices for certain creditors or shareholders.

Alongside this, there are also no-asset insolvency proceedings (concurso sin masa), also known as fast-track proceedings (concurso exprés), designed for cases where there are insufficient realisable assets and conceived for rapid processing, usually within weeks, with an average duration of around 60 days; in these cases, the prospects of recovery for creditors are usually very limited.

Spanish law provides for out-of-court restructuring mechanisms designed to address distressed scenarios at an early stage. In particular, the current framework allows for court-sanctioned restructuring plans broadly comparable to common law schemes of arrangements. These instruments may, subject to statutory safeguards, impose cross-class cram-down effects, including the impairment of secured and unsecured debt, mandatory extensions or write-offs, and, where appropriate, the restructuring or dilution of equity interests.

The regime also facilitates the injection of new money within the restructuring context, granting it enhanced protection under certain conditions. This segment has increasingly attracted private credit lenders, particularly those specialising in special situations and opportunistic strategies.

Within corporate restructuring, restructuring plans that may result from pre-insolvency negotiations can impose significant haircuts and deferrals on creditors, even where they have voted against the plan, provided that the legal requirements for approval and court confirmation are met. The Spanish system prioritises business continuity and, therefore, a substantial impairment of certain creditors’ claims may be justified if this is necessary to preserve the company’s viability.

In insolvency proceedings, the main risk for a creditor is that the collection logic ceases to be individual and becomes collective. From the opening of the proceedings, the principle of equal treatment applies to creditors in the same legal position, so that none of them may obtain undue advantages through separate enforcement actions or selective payments. The available value must be distributed in an orderly and proportionate manner within each category, in accordance with the applicable statutory priorities.

In practice, the creditor becomes dependent on the timing of the proceedings, the orderly realisation of the assets and, where applicable, a going-concern solution agreed or imposed by the relevant majorities. Accordingly, in insolvency proceedings, the creditor loses part of the control over its recovery, and its position is conditioned largely by the legal classification of its claim.

Finally, where the insolvency affects a non-debtor guarantor, the guarantee remains in place. However, if the guarantee is ultimately called upon due to the principal obligor’s default, the resulting claim would be subject to the rules of the guarantor’s insolvency proceedings.

Under Spanish insolvency law, the declaration of insolvency proceedings allows certain acts carried out by the debtor prior to the opening of the proceedings to be reviewed and set aside where they have caused detriment to the insolvency estate. Generally, acts carried out within the two years preceding the declaration of insolvency may be rescinded if they have caused an objective detriment to the estate, regardless of whether there was fraudulent intent. The key element is the negative economic effect on the debtor’s assets, rather than the debtor’s intention.

Among the acts typically subject to claw-back are the following:

• gratuitous transfers of assets or rights;
• early payments of debts where not yet due;
• the creation of security interests to secure pre-existing obligations where there was no obligation to grant them at that time; and
• transactions entered into with specially related parties on terms that are not equivalent to market terms.

In these cases, the law establishes certain presumptions of detriment that facilitate their reintegration.

Spanish insolvency law recognises set-off, but it is subject to a restrictive approach after the opening of insolvency proceedings. In essence, it may only be relied upon if, before the declaration of insolvency, the legal requirements for set-off to operate under general law were already met, in the sense that the claims are mutual, liquidated, due and payable.

Conversely, it is not possible to implement set-off arrangements that arise or are structured after the insolvency declaration, nor to use claim acquisitions or acceleration mechanisms to circumvent the principle of equal treatment among creditors. Accordingly, set-off is permitted when it is pre-existing and objective, but it is prohibited where it entails a preferential recovery outside the insolvency framework.

In out-of-court private credit restructurings, the most common approaches include:

• rescheduling or extending the maturity of existing debt;
• converting debt into equity; and
• providing new financing, typically in the form of mezzanine or subordinated debt.

Although these restructurings are conducted outside formal judicial proceedings, the co-operation of shareholders and other stakeholders is usually essential. Shareholders generally need to consent to any debt-to-equity conversions or new financing and may also need to accept changes to corporate governance. Other creditors may be required to agree to standstill arrangements or modifications to existing contracts to facilitate the restructuring, and key third parties, such as strategic suppliers, may need to approve certain amendments to ensure operational continuity and the effectiveness of the overall restructuring plan.

As against a purely private agreement, pre-insolvency restructuring offers three particularly relevant practical advantages.

• Court protection during negotiations – the debtor may file a notice with the court of the commencement of negotiations for a restructuring plan and, by doing so, obtain a stay of individual enforcement actions over assets and rights that are necessary for the continuation of the business, while also preventing the commencement of new enforcement actions during the negotiation period, which as a general rule is three months and may be extended for a further three months.
• Class-based negotiation and voting – the negotiation and approval of the plan are structured by classes of creditors, rather than creditor by creditor, which makes it possible to group claims by legal position and common interests and facilitates the achievement of the required majorities. These rules prevent the transaction from being blocked by the absence of unanimity, since, if the statutory majorities are met and the plan is confirmed by the court, it also binds dissenting creditors, who may be crammed down.
• Court confirmation – this strengthens the effectiveness of the plan by making it binding and opposable to third parties. This reduces uncertainty as to its implementation and limits the scope for subsequent challenges.

Restructuring plans are agreements between the debtor and its creditors aimed at preserving the viability of the company. Through them, it is possible, principally, to impose adjustments to the amount, timetable and structure of the debt, as well as measures affecting the assets or the equity. The key point is that voting is not conducted creditor by creditor, but rather through classes of creditors.

Classes are formed by grouping creditors with common interests on the basis of objective criteria. Once the classes have been constituted, the plan is voted on within each class and is deemed approved in that class if more than two thirds of the affected claims vote in favour, or three quarters in the case of classes of secured creditors. Accordingly, there may be dissenting creditors within a class that approves the plan, since internal unanimity is not required, and those creditors are bound by (and may be crammed down under) the plan if the following legal requirements for approval are met.

Once the classes have been defined, the general rule is approval by unanimity of classes. However, if unanimity is not achieved, the system allows court confirmation with cross-class cram-down through two routes.

• The first route requires the plan to be approved by a simple majority of classes, provided that, among the classes voting in favour, there is at least one class containing claims that, in a hypothetical insolvency proceeding, would rank as privileged claims, whether by reason of security in rem or general privilege (see 7.2 Waterfall of Payments).
• The second route allows court confirmation where the plan is supported by at least one class that can reasonably be expected to have a genuine prospect of recovery in a going-concern scenario, although in that case a report from a restructuring expert assessing the company as a going concern must be provided.

Where the plan is confirmed without the support of all classes, dissenting creditors may challenge it through a specific opposition/challenge procedure. In that review, the court examines:

• whether the plan has been processed and approved correctly, including compliance with formal requirements, proper class formation and the applicable statutory majorities; and
• whether the content of the plan causes unjustified prejudice to the dissenting creditor, in particular whether it leaves that creditor in a worse position than it would reasonably be in absent from the plan, whether equal treatment within its class has been respected and whether the priority rules for the allocation of value have been observed.

In addition to restructuring plans, a widely used operational mechanism to preserve value through a rapid transfer of the business is the sale of a business unit. This transfer can be structured through different routes depending on the stage and the insolvency channel used. Where the aim is to accelerate the transaction, two alternatives stand out.

• The insolvency “pre-pack” begins with an application for the court appointment of a supervising expert to ensure that the process of preparation and solicitation of offers is competitive, transparent and fair. When filing for insolvency, the expert’s report is submitted and, where applicable, the selected offer, with the aim of obtaining swift court authorisation and completion of the sale.
• There is the alternative of filing for insolvency proceedings directly together with a binding offer to acquire the business unit.

However, generally, the purchaser’s commitment to continue or restart the activity for a minimum period is contemplated, together with rules on publicity and confidentiality of the process in order to foster competition without destroying value.