The Spanish securitisation market is sensitive to prevailing economic conditions. By number of transactions, the most commonly securitised assets in Spain are consumer and auto loans, although other asset classes, such as trade receivables, corporate loans, residential mortgage loans and non-performing loans, are also subject to securitisation.

The use of Spanish securitisation funds has become a common method for structuring the sale of mortgage portfolios due to the regulatory, tax and operational advantages such structures offer.

The structuring of Spanish securitisations does not vary materially according to the asset class. Such transactions are necessarily structured by means of a special purpose vehicle known as a fondo de titulización (securitisation fund), as further detailed in 6.2 SPEs.

A securitisation transaction in Spain may be structured to incorporate certain features:

• public or private special purpose entity (SPE) – a determination that depends on whether the notes are listed on a regulated market (such as the Association of Financial Asset Intermediaries (Asociación de Intermediarios de Activos Financieros; AIAF), in which case the fund is deemed public) or on a multilateral trading facility (MTF), or are unlisted (in which case the fund is deemed private);
• election to be structured outside the Securitisation Regulation – given that securitisation is regulated at both the EU and domestic levels, a transaction may be structured under national law so as to fall outside the definition of “securitisation” under the Securitisation Regulation, although the implications thereof require careful consideration by specialist legal advisers;
• closed-ended or open-ended structure – Spanish SPEs can be structured with closed or open assets and liabilities, or any combination thereof;
• sale documentation – where the underlying assets comprise mortgages and the seller is a credit institution, the sale to the SPE must be documented pursuant to the special regime prescribed by Royal Decree-Law 24/2021;
• risk retention modality – the method by which the risk retention requirement stipulated in Article 6 of the Securitisation Regulation is to be satisfied (see 4.3 Credit Risk Retention);
• waterfall – Spanish SPEs are required to feature, as a minimum, both an ordinary waterfall and a post-enforcement waterfall, where any additional waterfalls are optional;
• initial costs – initial costs are typically funded by the originator, whether by means of a specific tranche of notes or a subordinated loan; and
• meeting of creditors – where a meeting of creditors is contemplated, the requisite majorities and the scope of decisions that may be taken should be specified.

Altering any of these characteristics post-execution is challenging and may, where feasible, necessitate the winding-up of the transaction.

The principal laws and regulations applicable to the structuring of a securitisation transaction in Spain comprise a combination of domestic and EU-level legislation.

Spanish Regulations

These include:

• Law 5/2015 (the “Spanish Securitisation Law”) – sets out the domestic legal framework for securitisation transactions;
• Law 6/2023 (the “Spanish Securities Markets Law”) – establishes the legal framework governing the issuance of notes in the capital markets, having recently been recast to transpose several EU directives;
• Royal Decree 724/2023 (the “Spanish Capital Markets Regulation”) – sets out the domestic legal framework developing the Spanish Securities Markets Law; and
• Royal Decree-Law 24/2021 (the “Spanish Mortgage Mobilisation Regulation”) – provides the legal framework for the mobilisation of mortgage loans by credit institutions through securitisation, covered bonds and collateralised loan obligations.

EU Regulations

These include:

• Regulation (EU) 2017/2402 (the “Securitisation Regulation”) and its delegated regulations – these govern most securitisation transactions in Spain, which typically fall within the Regulation’s definition of “securitisation” and are therefore subject to its provisions; and
• Regulation (EU) 2017/1129 (the “Prospectus Regulation”) and its delegated regulations – these apply to public transactions where notes are to be listed on a regulated market, requiring a prospectus to be registered with the National Securities Market Commission (Comisión Nacional del Mercado de Valores; CNMV).

The customary method for securitising Spanish-governed assets is by means of a domestic transaction in Spain, governed by both the Securitisation Regulation and the Spanish Securitisation Law. This approach offers several advantages, including lower transactional costs and a responsive regulatory framework specifically designed for the allocation of Spanish assets. The vehicle for such securitisations is typically a “securitisation fund” (fondo de titulización), a distinct form of orphan vehicle, as further detailed in 6.2 SPEs.

It is, however, permissible to structure a cross-border securitisation of Spanish assets using foreign SPEs, though this structure is less common. In certain recent transactions involving Spanish assets, an Irish designated activity company (DAC) or a Luxembourg company has been used in conjunction with a private Spanish SPE. This alternative presents several complexities, including potential cross-border friction concerning listing requirements, tax implications and corporate obligations.

The forms of credit enhancement most frequently utilised in Spanish securitisation transactions include the following.

• Subordination – the tranching of notes is the most common form of credit enhancement. It should be noted, however, that this method is expressly excluded where a structure is intended to fall outside the scope of the Securitisation Regulation.
• Hedging instruments – this form of credit enhancement is particularly relevant in transactions where the assets and liabilities are subject to different interest rate profiles.
• Reserves – Spanish transactions commonly feature one or both of the following types of reserve:
1. reserves that function as a form of credit enhancement; and
2. reserves designed to mitigate other risks (such as commingling risk or set-off risk).
• Excess spread – this is a very common form of credit enhancement in Spain and is integral to the financial modelling of the transaction.

Under the Spanish Securitisation Law, securitisations made in Spain are structured by means of a special type of SPE known as a fondo de titulización, the main characteristics of which are discussed in 6.2 SPEs.

The role of the SPE is ring-fenced as it is administered by a management company (see 2.7 Bond/Note Trustees) with no possibility of other business activities being conducted outside the scope of the transaction.

The Spanish Securitisation Law does not recognise the concept of a “sponsor”; unlike in other EU jurisdictions, this role is not a feature of Spanish securitisation practice. The applicable rules are therefore those set out in Article 2 of the Securitisation Regulation, which apply to certain credit institutions (whether located inside or outside the EU) and investment firms (other than the originator).

The originator and the seller are ordinarily the same entity, and its roles are limited to the following.

• Sale and purchase agreement (SPA): the seller executes the SPA with the SPE for assets other than mortgage loans. Where mortgage loans are transferred, provided the seller is a financial entity, it will issue and deliver multiple titles in favour of the SPE, evidencing ownership of such mortgage loans.
• Liability for assets: the seller assumes certain liabilities towards the SPE under a set of representations and warranties concerning itself and the assets. Such liability subsists for the duration of the securitisation transaction.
• Liability for prospectus: the originator assumes responsibility towards noteholders for those sections of the prospectus (or information memorandum) that are drafted on the basis of information it has provided.

The originators in Spain typically include:

• major and medium-sized banks, particularly in respect of residential and consumer loans;
• specialist car finance companies, which regularly securitise their car loan portfolios using traditional or innovative structures;
• consumer loan lenders, which typically securitise consumer loans and credit card receivables in both static and revolving structures; and
• working capital specialists, with asset classes such as working capital finance and trade receivables having become increasingly active in recent years.

The role of a placement agent is fundamental to Spanish securitisations, whereas the role of an underwriter is not a typical feature of such transactions.

• Regulated activity: the placement of securities is a regulated activity under Article 38 of the Spanish Securities Market Law. Accordingly, entities acting as placement agents must be duly authorised by, and registered with, the CNMV or the Bank of Spain.
• Lead manager: placement entities are commonly referred to as the “lead manager”, “sole lead manager” or “joint lead manager”. The responsibilities associated with this title include the placement of notes, monitoring of investor demand and execution of the pricing of the notes.
• Arranger: at least one of the placement entities will also act as arranger. This role pertains to the structuring of the transaction rather than the placement of the notes. The arranger of a transaction, however, usually holds a key position in the settlement of the notes as billing and delivery agent, although various other structures are possible in this regard.
• Prospectus: pursuant to Article 38 of the Spanish Securities Markets Law, an arranger assumes liability for those sections of the prospectus that are prepared on the basis of information provided by the originator.
• Placement agreement: on closing, the originator, the SPE, the lead managers and the arrangers execute a placement agreement setting out the terms of the placement of the notes. Such an agreement is usually governed by Spanish law.

The servicer’s principal functions include the following.

• Contractual delegation: pursuant to the SPE’s deed of incorporation and the servicing agreement, the SPE’s management company delegates certain functions relating to the administration of the underlying assets to the servicer.
• Payments and collateral: the servicer is typically subject to a cash sweep mechanism in respect of the bank accounts into which debtors make payments on the underlying assets.
• Reporting: the servicer is typically required to deliver periodic reports on the performance of the underlying assets.
• Enforcement: a key function of the servicer is the management of defaulted assets. The servicing agreement will typically contain an enforcement policy, which sets out the basis for any out-of-court renegotiations, forbearance or court-led enforcement action.

The features of the servicing activities in the context of a securitisation transaction are further discussed in 3.5 Principal Servicing Provisions.

Investors subscribe for the notes issued by SPEs and pay the purchase price for such notes. Depending on the transaction type, investors may have the following responsibilities.

• Subscription agreement: in certain transactions, some or all investors may execute a subscription agreement to formalise their allocations of the notes.
• Regulatory obligations: certain investors are subject to special regulatory obligations arising from their legal status. In addition, investors in securitisation transactions must comply with the due diligence requirements under Article 5 of the Securitisation Regulation.
• Qualified investors: participation in transactions is usually restricted to qualified investors, as defined in Article 2 of the Prospectus Regulation.
• Retail clients: if a securitisation position is to be sold to a retail client (as defined in Article 4(1) of Directive 2014/65/EU), certain stringent requirements must be met, including the satisfactory completion of a suitability test.

The concept of a trust or trustee is not recognised under Spanish law. Accordingly, as explained in 2.1 Issuers, SPEs, which are devoid of legal personality, must be administered by a special type of management company that has the following features.

• Regulation – under the Spanish Securitisation Law (Title III, Chapter II), only certain regulated entities are permitted to administer SPEs. Such entities must be authorised by the CNMV, which maintains a list of authorised management companies on its website.
• Legal duties – these include the incorporation, management and legal representation of an SPE in the interests of the noteholders. In particular, management companies are required to:
1. maintain appropriately experienced staff;
2. conduct a risk assessment of the securitised assets;
3. avoid conflicts of interest; and
4. comply with applicable reporting obligations.
• Status – such entities must include the suffix “S.G.F.T.” (sociedad gestora de fondos de titulización) in their legal name.
• Foreign SPEs – pursuant to Article 25.2 of the Spanish Securitisation Law, Spanish management companies may only incorporate, manage and represent foreign SPEs that are analogous to Spanish SPEs, in accordance with the regulations of the relevant jurisdiction.

In addition to the general obligation of the management company to act in the interests of the noteholders, securitisations may be structured with or without a meeting of creditors (see 1.2 Structures Relating to Financial Assets).

The Spanish legal framework obviates the requirement for a security trustee. Nevertheless, other agents are customarily appointed, including a paying agent, a billing and delivery agent, and an account bank.

A primary risk associated with securitisations is the potential for claw-back in the event of the seller’s insolvency. The Spanish Securitisation Law, however, provides an exception to the standard claw-back provisions under the Spanish Insolvency Law.

Securitisations effected by means of an SPE under the Spanish Securitisation Law benefit from an “absolute separation right”, pursuant to which the application of claw-back is substantially restricted to circumstances of fraud. This statutory exception satisfies the requirement under Article 20(1) of the EU Securitisation Regulation that the transfer of receivables to an SPE shall not be subject to severe claw-back provisions in the event of the seller’s insolvency.

Types of Warranties

In a typical Spanish securitisation, the seller provides two categories of representations and warranties.

• Representations relating to the seller, which typically warrant that:
1. it is duly incorporated and validly existing;
2. it is not insolvent or subject to any insolvency proceedings;
3. it has obtained all necessary corporate authorisations and approvals; and
4. its audited annual accounts for the two preceding financial years were properly prepared.
• Representations relating to the assets, which typically warrant that such assets:
1. arose in the ordinary course of the seller’s business;
2. are existing, valid and enforceable in accordance with applicable law; and
3. satisfy all conditions precedent to their transfer to the SPE.

Breach of R&W

A breach of a representation or warranty concerning an asset is typically framed as a breach of the eligibility criteria. Contractual remedies for such a breach usually impose a three-stage obligation on the seller:

• firstly, to remedy the breach;
• secondly, if the breach cannot be remedied, to replace the affected receivable; and
• thirdly, if replacement is not possible, to repurchase the affected asset.

These obligations are primarily enforced by the management company. However, as they constitute contractual undertakings within the SPE’s deed of incorporation, they are also capable of judicial enforcement.

Common Provisions

Under Spanish law, the transfer of assets from the seller to the SPE is effected as follows:

• assignment – the transfer is structured as an assignment (cesión) of the receivables derived from the loans;
• asset type – the sale is generally executed by means of an SPA. In the case of mortgage loans sold by a financial entity, the transfer may be effected through the issuance of multiple titles.
• formalities – the assignment transaction must comply with the formalities set out in Article 17(c) of Law 5/2015; and
• revolving formalities – in the context of revolving securitisations, for each additional purchase of assets, the management company must deliver to the CNMV a document, executed by the seller, which identifies the additional assets and confirms their compliance with the relevant eligibility criteria.

Notarisation

Pursuant to Articles 1227, 1280 and 1526 of the Spanish Civil Code, transaction documentation typically provides for the sale agreement to be notarised to ensure it is fully effective as against third parties.

Notification to Borrowers

Although notification to the borrower is not a requirement for perfection of the transfer, until such notification is given, Article 1,198 of the Civil Code provides that the borrower:

• is discharged from its payment obligations to the extent of any payments made to the seller (as the original lender); and
• may set off any obligations owed to it by the seller (which may be of particular relevance where the seller is a retail bank).

As the seller is typically appointed as servicer in Spanish securitisations, notification is not usually required, save in the following circumstances.

• Legal requirement: certain regional regulations mandate notification to borrowers where such borrowers are consumers and their loans satisfy particular criteria.
• Servicer event: upon the occurrence of certain events (such as servicer insolvency or a material breach of its obligations), the servicer replacement provisions are typically triggered. In such circumstances, it is best practice for all borrowers to be notified to mitigate certain operational risks.

The transaction documentation will typically contain covenants given by:

• the seller;
• the originator; and
• the management company.

Key covenants typically include undertakings that:

• the seller will sell to the SPE relevant assets that meet the eligibility criteria (as further described in 3.2 Principal Warranties);
• the servicer will transfer amounts collected from the debtors of the underlying assets to the SPE;
• the servicer will manage the underlying assets (see 4.9 Banks Securitising Financial Assets);
• the seller (as originator) will retain a material net economic interest of not less than 5% of the nominal value of the securitisation (see 4.3 Credit Risk Retention); and
• all applicable regulations will be complied with.

Article 26 of the Spanish Securitisation Law provides that primary legal responsibility for the administration of the assets held by an SPE rests with its management company.

Usual Servicing Provisions

The servicing provisions are typically set out in a servicing agreement entered into by, amongst others, the servicer and the SPE on or around the closing date. Such provisions customarily include the following matters:

• custody of documents and records relating to the underlying assets;
• collection and remittance of all amounts received in respect of the assets to the SPE;
• procedures for managing and enforcing defaulted assets;
• obligations to provide reports and notices to the management company and the SPE; and
• servicer termination events and the servicer replacement mechanics.

Servicing by Asset Class

The servicing activities required will depend on the asset class.

• Mortgage loans: in respect of real estate mortgages, the Spanish Mortgage Mobilisation Regulation requires the seller (as original lender) to retain certain non-delegable servicing tasks. The remaining tasks may be, and typically are, delegated to a servicer. This is a particularly important consideration in the securitisation of non-performing loan portfolios.
• Other loans: it is common for the management company to delegate all of its asset management obligations to a servicer (who is often the seller). Such delegation does not, however, release the management company from its primary liability to the noteholders under Article 26 of the Spanish Securitisation Law.

Four principal categories of default are typically provided for.

• SPE events of default: Spanish transactions do not typically include SPE events of default. A payment default is not typically specified; instead, an interest payment default results in the amount accruing until the next payment date, without triggering default interest. At the SPE level, most early redemption triggers are linked to ad hoc calls, such as a clean-up call, tax call or regulatory call. It is also possible to include bespoke calls tailored to the seller’s requirements (such as a green call or a random repurchase call).
• Management company defaults: management companies are subject to certain statutory and operational defaults under the Spanish Securitisation Law concerning their legal status and compliance with legal covenants. If such defaults are not cured within the prescribed statutory period, the transaction documents will invariably replicate the replacement procedure set out in the Spanish Securitisation Law.
• Seller defaults: as described in 3.2 Principal Warranties, the seller is bound by certain representations and warranties in respect of the assets, a breach of which may trigger the seller’s liability.
• Default service providers, such as the paying agent, account bank, hedge provider and servicer, are subject to the default provisions set out in their agreements. A common example is a rating downgrade of the account bank, which typically constitutes an event of default triggering a replacement procedure.

Reflecting the influence of English law, the placement agreement executed between the seller, the SPE and the placement agents may include indemnities. Such indemnities are typically limited to matters concerning compliance with selling restrictions in connection with the placement agents’ activities.

As described in 1.2 Structures Relating to Financial Assets, a key structural consideration is whether a transaction is public or private. Notes are typically represented as book entries in Iberclear, with the listing requirements differing as follows.

• Public securitisation: a prospectus must be prepared in accordance with the Prospectus Regulation and filed with the CNMV. The notes are usually listed on the Spanish regulated market for fixed-income securities (AIAF).
• Private securitisation: no prospectus is required where the notes are listed on an MTF. Common venues for such listings include the Spanish Alternative Fixed-Income Market (Mercado Alternativo de Renta Fija; MARF, the Vienna MTF and the Dublin MTF.

In certain circumstances, a transaction may be structured without book entries, in which case the notes will be represented by a physical security.

Interest rate derivatives are the most common form of derivative used in Spanish securitisations to hedge against mismatches between the interest rate profile of the SPE’s assets (namely, the loans) and its liabilities (namely, the notes).

While the International Swaps and Derivatives Association (ISDA) standard is the most prevalent documentation standard, the master agreement for financial transactions (contrato marco de operaciones financieras; CMOF) standard is also used in some instances (particularly in fully retained deals). Interest rate derivatives may be governed by Spanish law or a foreign law, with English, French and Irish law being the most common choices in Spain. Parties should, however, consider that adopting a foreign law-governed ISDA is likely to incur additional costs relating to legal opinions on the hedging agreement.

As described in 1.2 Structures Relating to Financial Assets, a key structural decision is whether the transaction will be public or private.

• Prospectus: a prospectus is required for public securitisations (ie, where the notes issued by the SPE are listed on a regulated market). The prospectus must be prepared in accordance with the Prospectus Regulation and authorised by the CNMV.
• Information memorandum: no prospectus is required if the notes are listed on a multilateral trading facility, although a listing document may be necessary. For instance, if notes are listed on the Spanish MARF, an information memorandum must be prepared in accordance with the requirements and formats prescribed by MARF Circular 1/2025.

Spanish-Specific Requirements

Disclosure to the CNMV

The assignment of receivables to an SPE is subject to the following requirements (Article 17 of Law 5/2015):

• annual accounts – the assignor must provide its audited annual accounts for the two preceding financial years to the CNMV, unless the assignor has been recently incorporated;
• annual reports – the assignor must detail any transactions involving the transfer of credit rights, whether present or future, in its annual reports;
• revolving nature – if additional assets are assigned to the SPE, a notification must be sent to the CNMV identifying such assets and their characteristics, together with a representation that they meet the requirements of the SPE’s deed of incorporation; and
• formalities – transfers of assets to an SPE must be formalised in a public deed.

Public information

Management companies shall publish the following information on their websites for each of the SPEs they manage (Article 34 of Law 5/2015):

• the deed of incorporation and any subsequent deeds;
• the prospectus and any supplements thereto, where applicable; and
• the annual and quarterly reports (see 4.4 Periodic Reporting).

European Union Requirements

SPEs are subject to the disclosure requirements set out in the Securitisation Regulation (see 4.2 General Disclosure Laws or Regulations).

Disclosure Obligations to National Bodies

Pursuant to the Securitisation Regulation, an SPE must, before pricing, make the following information available to the CNMV and investors (and, upon request, to potential investors):

• all underlying documentation essential for an understanding of the transaction;
• where no prospectus has been prepared in accordance with the Prospectus Regulation, a transaction summary or overview of the main features of the securitisation; and
• in the case of a simple, transparent and standardised (STS) securitisation, the STS notification.

Disclosure to a Securitisation Repository

Under the Securitisation Regulation, disclosures relating to public securitisations must be made to a securitisation repository (being an entity registered with the European Securities and Markets Authority (ESMA) for that purpose). By contrast, the means of disclosure for private securitisations is not prescribed. ESMA has stated that “absent any instructions or guidance provided by national competent authorities, reporting entities are free to make use of any arrangements that meet the conditions of the Regulation”.

Spanish law does not impose specific risk retention requirements for securitisation transactions. Accordingly, the applicable legal framework is set out in Article 6 of the Securitisation Regulation, which requires the originator, sponsor and original lender to retain a material net economic interest of not less than 5% of the nominal value of the securitisation.

Such net economic interest must be measured at the origination date and maintained throughout the life of the securitisation transaction. It shall be determined by reference to the notional value for any off-balance sheet items. Furthermore, the retained interest may not be sold, divided amongst different classes of retainers or be subject to any credit risk mitigation, short positions or other form of hedging.

The Securitisation Regulation sets out the following alternative methods by which this retention requirement may be satisfied:

• not less than 5% of the nominal value of each of the tranches sold;
• in the case of revolving securitisations or securitisations of revolving exposures, an originator’s interest of not less than 5% of the nominal value of each of the securitised exposures;
• randomly selected exposures, equivalent to not less than 5% of the nominal value of the securitised exposures, provided that such exposures would otherwise have been securitised and the number of potentially securitised exposures is not less than 100 at origination;
• the first loss tranche and, where such retention does not amount to 5% of the nominal value of the securitised exposures, such other tranches as may be necessary (having the same or a more severe risk profile than those transferred or sold to investors and not maturing any earlier than those transferred or sold to investors) to ensure that the total retention equals not less than 5% of the nominal value of the securitised exposures; and
• a first loss exposure of not less than 5% in respect of each securitised exposure.

Reporting to the CNMV

Pursuant to Article 35 of Law 5/2015, management companies of SPEs must submit the following information on each SPE to the CNMV in its capacity as the national public supervisory body:

• quarterly, within two months of the end of each calendar quarter, a breakdown of the assets transferred to the SPE, a breakdown of the SPE’s liabilities and, where applicable, the total commitments arising from any derivative instruments in place; and
• annually, within four months following the end of the SPE’s financial year (ie, by 30 April of each year), the SPE’s annual financial statements for registration with the CNMV, together with the auditors’ report in respect thereof.

Disclosure of Material Information

Pursuant to Article 36 of Law 5/2015, management companies must immediately notify the CNMV and their creditors of any material event specifically relevant to the situation or development of the SPE. A material event is one that could have a significant impact on the notes issued and/or the assets of the SPE. This obligation does not apply where an SPE’s securities are not admitted to trading on an official secondary market.

Under Law 5/2015, there is no legal requirement in Spain for securitisation notes to be granted a credit rating in order to incorporate an SPE. However, it is common market practice for ratings to be assigned to the notes of public securitisations.

The activities of rating agencies in Spain are primarily regulated under the following framework:

• Regulation (EC) No 1060/2009 on credit rating agencies (the “CRA Regulation”), as amended by Regulation (EU) No 513/2011 (“CRA II”), which transferred responsibility for the registration and supervision of credit rating agencies to ESMA; and
• Regulation (EU) No 462/2013 (“CRA III”), which introduced provisions relating to, amongst other things, the reliance of firms on external credit ratings, independence, sovereign debt ratings, the degree of competition in the industry and the liability regime.

The capital and liquidity requirements applicable to banks are governed by a package of legislation comprising:

• Directive 2013/36/EU on prudential supervision, as implemented in Spain by Law 10/2014 and Bank of Spain Circulars 2/2014 and 2/2016;
• Regulation (EU) No 575/2013 on prudential requirements;
• Directive (EU) 2019/878, the implementation of which into Spanish law was commenced by Royal Decree-Law 7/2021; and
• Regulation (EU) 2019/876 (“CRR II”).

This legislative package establishes two principal requirements.

• The liquidity coverage requirement (LCR) assesses whether a bank holds sufficient high-quality liquid assets (HQLAs) to meet its liquidity needs during a 30-day stress period. Securitisations may be eligible as Level 2B HQLAs provided that:
1. the securitisation qualifies as an STS securitisation; and
2. an external credit quality assessment has been provided by an External Credit Assessment Institution that satisfies certain prescribed requirements.
• The net stable funding requirement (NSFR) seeks to ensure that banks maintain a minimum level of stable funding to avoid short-term funding crises. In the context of securitisation, an originator bank must hold a prescribed level of stable funding against the assets held. A bank investing in a securitisation must also hold a prescribed amount of stable funding against that holding.

The legal framework governing insurance companies is set out in Law 20/2015 and Royal Decree 1060/2015, concerning the regulation, supervision and solvency of insurance and reinsurance entities. The requirements applicable to other regulated financial entities (such as alternative investment fund managers) are established in Law 22/2014, which governs venture capital entities and other closed-ended collective investment schemes and their management companies.

Hedging

Derivatives are commonly used by SPEs to hedge risks, principally interest rate risk, which is typically hedged using interest rate swaps and caps.

The CNMV is the Spanish supervisory authority for the derivatives market and the principal regulator of entities operating in that market. Where the relevant entity is a credit institution, the Bank of Spain may also exercise certain supervisory or control functions.

In any case, the relevant regulation on derivatives is as follows:

• Spanish regulation – with regard to the use of derivatives as hedge instruments, Law 5/2015 (Article 35) lays out that management companies shall submit the annual report to the CNMV for each of the SPEs they manage (as described in 4.4 Periodic Reporting), which must include, inter alia, the total commitments arising from the derivatives in place (if any); and
• European regulation – the Securitisation Regulation (Article 21) sets forth that SPEs shall not enter into derivative contracts except for the purpose of hedging interest rate or currency risk, and that such derivatives shall be underwritten and documented according to common market standards.

Synthetic Securitisation

Further to the use of derivative instruments for hedging, synthetic securitisation transactions also utilise financial derivatives to effect risk transfer. Such synthetic securitisation transactions are permitted under both Spanish and European regulations (namely, Law 5/2015 and the Securitisation Regulation), as further described in 5.1 Synthetic Securitisation Regulation and Structure.

Spanish Supervisory Body

Securitisation in Spain constitutes a regulated activity under Law 5/2015, supervised by the CNMV. Public transactions require prior authorisation from the CNMV, which is the supervisory body responsible for approving and registering the relevant prospectuses. In respect of private securitisations for which no prospectus is required to be published, the CNMV performs ex post control, as the deed of incorporation of the SPE must be registered in the CNMV’s public records. It should be noted that cash securitisations may only be carried out in Spain through securitisation funds, as further discussed in 4.10 SPEs or Other Entities and 4.11 Activities Avoided by SPEs or Other Securitisation Entities.

The Meeting of Creditors

Article 37 of Law 5/2015 provides for the establishment of a “meeting of creditors” (junta de acreedores). This body, which operates as a creditors’ committee for a given securitisation transaction, affords an additional layer of protection for investors. The implications of establishing such a committee warrant careful consideration.

European Regulations

In any case, European regulation is the main legal framework that provides protection for investors by virtue of:

• the Securitisation Regulation, which contains, among other things, the disclosure requirements and the compulsory periodic reporting obligations; and
• where applicable, the Prospectus Regulation, which ensures that investors will be provided with all material information regarding a securitisation transaction.

In Spain, the legal framework applicable to securitising banks derives principally from the Securitisation Regulation, the CRR and Law 5/2015. Additionally, the following Spanish legal requirements must be taken into account:

Mortgage Loans

Applicable legislation provides that credit rights arising from mortgage loans can be assigned by means of transferrable securities called mortgage participations (MPs) (participaciones hipotecarias). To transfer such a credit right through an MP, the following conditions must be satisfied:

• the mortgage loan must be secured by a first-ranking mortgage;
• the loan-to-value ratio must not exceed 60% for commercial properties or 80% for residential properties;
• the mortgaged property must be insured against damage; and
• the assets must not be excluded assets (for example, mortgage loans granted over a right of usufruct, surface rights or administrative concessions).

If any of these requirements are not met, the credit rights may instead be transferred by means of different transferrable securities, known as mortgage transfer certificates (MTCs) (certificados de transmisión de hipoteca). However, MTCs may only be held by qualified investors (as defined in 2.6 Investors).

Consumer Loans

The applicable Spanish legal framework contains no specific provisions regarding the sale and perfection of consumer loans. However, pursuant to Law 16/2011, where a loan is assigned by the original lender and that lender ceases to act as servicer, the customer must be notified of the assignment.

Furthermore, as noted in 3.3 Principal Perfection Provisions, certain regional regulations require that borrowers be notified if they are consumers and their loans meet certain requirements.

Under Law 5/2015, securitisation in Spain must be effected through a securitisation fund (fondo de titulización), which constitutes the SPE for the purposes of the transaction.

Please see 2.7 Bond/Note Trustees regarding the main features of an SPE established under the Spanish Securitisation Law.

As noted in 4.10 SPEs or Other Entities, securitisation in Spain must be effected through SPEs. These SPEs are managed by a management company (a sociedad gestora de fondos de titulización or SGFT), the sole corporate object of which is the management of securitisation SPEs in Spain and elsewhere.

As a general rule, government-sponsored entities do not participate in the securitisation market, although national or supranational entities may, from time to time, participate in such transactions as purchasers.

A wide variety of investors may participate in securitisations, including, without limitation, credit institutions, investment funds, insurance companies and other institutional investors.

The following domestic laws are also relevant to securitisations effected in Spain.

• Royal Legislative Decree 1/2020 (the “Spanish Insolvency Law”), which constitutes the domestic legal framework for insolvency. This law is relevant to the bankruptcy-remote status of Spanish SPEs (as discussed in 6.1 Insolvency Laws) and, depending on the underlying asset, also affects the insolvency regime applicable to debtors of the SPE.
• Royal Decree of 24 July 1889 (the “Civil Code”), which establishes the fundamental principles of private and civil law in Spain. Its provisions are relevant in connection with the execution of documentation and the structuring of asset transfers to the SPE.

In Spain, synthetic securitisation transactions are permitted under Law 5/2015 and the Securitisation Regulation. These are transactions in which credit risk is transferred from an originator to investors by means of derivative instruments or guarantees, without the transfer of the underlying exposures.

Specifically, Article 19 of Law 5/2015 provides that:

• SPEs may synthetically securitise loans and other credit rights by entering into credit derivatives with third parties and/or granting financial guarantees to the holders of such loans or credit rights; and
• the assets of an SPE may comprise deposits in credit institutions and/or fixed-income securities traded on official secondary markets.

Further to the Securitisation Regulation and Law 5/2015, Spanish synthetic securitisations are also governed at the European level by CRR II and Regulation (EU) 2021/557, which set out the requirements for a synthetic securitisation to be designated as STS.

Spanish insolvency law affects securitisations in the following key respects.

• Claw-back risk upon transfer: a primary consideration when transferring assets from the seller to the SPE is the risk of claw-back. As explained in 3.1 Bankruptcy-Remote Transfer of Financial Assets, the transfer of receivables to an SPE is structured so as not to be subject to onerous claw-back provisions in the event of the seller’s insolvency.
• Insolvency of the SPE: as described in 6.5 Bankruptcy-Remote SPE, a Spanish SPE is, by its legal design, excluded from insolvency proceedings. The Spanish Securitisation Law instead provides specific procedures for the orderly early liquidation of the SPE.
• Insolvency of the SPE’s management company: Article 33 of the Spanish Securitisation Law mandates the compulsory replacement of the management company upon its insolvency. Furthermore, monies belonging to the SPE are not deemed to form part of the management company’s bankruptcy estate. See 6.2 SPEs for further information on the legal structure of the SPE.

As described in 4.10 SPEs or Other Entities, securitisations in Spain are governed by the Spanish Securitisation Law, which prescribes a mandatory framework for such transactions. A special type of SPE must be incorporated as an ad hoc special purpose fund possessing the following features:

• it is orphan in nature, comprising a separate estate and zero equity, and may be organised into one or more compartments, each of which is statutorily segregated from the others;
• it is devoid of legal personality and is administered by a management company (sociedad gestora) of a type further described in 2.7 Bond/Note Trustees;
• its name must include the suffix fondo de titulización, or “F.T.” (meaning “securitisation fund”);
• the fund is incorporated upon the closing of the securitisation transaction by means of a public deed of incorporation executed before a notary, which serves as its constitutional document;
• the activities of an SPE are strictly limited to those set out in the prospectus and the deed of incorporation, which typically include the issuance of notes, the acquisition of the underlying assets and all ancillary obligations, such as disclosure and administration of the payment waterfall; and
• ownership and security of assets – the SPE holds full legal and beneficial title to the transferred assets and any ancillary rights, including any security attached to such assets.

Substantive Consolidation

The doctrine of substantive consolidation is not a relevant consideration in the context of Spanish securitisation. As Spanish insolvency law does not apply to such SPEs, their bankruptcy-remote status is unaffected by this doctrine.

The sale of assets to the SPE shall comply with the requirements set out in Article 17 of the Spanish Securitisation Law, which include the following:

• written agreement – the seller and the SPE shall execute a written agreement identifying each loan by reference to, at a minimum, its identification code, execution date, outstanding balance as at the cut-off date, interest rate, amortisation system and maturity date; and
• disclosure – the seller must file with the CNMV its financial statements for the two most recent fiscal years and disclose any executed securitisation transactions in its financial statements.

True-Sale Opinion

It is customary for transaction counsel to provide a legal opinion confirming that the assignment of receivables to the SPE on the incorporation date:

• constitutes a valid, legal and unconditional true sale, effective for the remaining term of such receivables until their maturity; and
• is binding on the seller and enforceable against third parties, with full recourse to the underlying borrowers and, where applicable, any guarantors.

As described in 6.5 Bankruptcy-Remote SPE, Spanish securitisation funds are structured to be bankruptcy-remote. Nevertheless, a specific risk arises in connection with collections, which must be structurally mitigated.

Commingling risk arises in Spanish securitisations where the servicer, which is typically the seller or originator, collects payments in respect of the loans into its own bank account before transferring such amounts to the SPE’s bank account. In the event of the servicer’s insolvency, the fungible nature of money gives rise to a risk that the SPE’s claim to the funds held in the servicer’s account could be challenged by other creditors.

Market practice in Spain to mitigate commingling risk includes the following measures:

• shortening the permitted period for the transfer of collections from the seller’s collection account to the SPE’s account, thereby reducing the quantum of risk at any given time;
• requiring the seller to establish a commingling reserve, funded to a specified level and held in a blocked account of the SPE; and
• the creation of a pledge over the seller’s collection account in favour of the SPE, to establish a prior-ranking claim over the funds in that account upon the seller’s insolvency.

The bankruptcy-remote status of the SPE is an integral feature of its legal design. As described in 2.1 Issuers, the SPE in Spanish transactions is invariably a securitisation fund governed by the Spanish Securitisation Law. Such funds lack legal personality and, consequently, are not subject to the Spanish Insolvency Law.

Notwithstanding this, the following measures are considered best practice to preserve the bankruptcy-remote status of Spanish SPEs.

• Prospectus and deed of incorporation – the prospectus and deed of incorporation must include specific legal references concerning:
1. the nature of the SPE as a Spanish securitisation fund incorporated under the Spanish Securitisation Law;
2. the non-applicability of the Spanish Insolvency Law to the SPE; and
3. the application of Article 16.4 of the Spanish Securitisation Law, Article 15 of Law 2/1981 (now contained in Article 42.2 of the Spanish Mortgage Mobilisation Regulation) and the First Additional Provision of the Spanish Mortgage Mobilisation Regulation.
• Legal opinion – it is customary for drafting counsel to prepare a legal opinion covering the entire transaction, which will opine specifically on the following matters:
1. the absence of onerous claw-back provisions affecting the transfer in the event of the seller’s insolvency;
2. that the Spanish Insolvency Law does not apply to the SPE; and
3. the consequences of the insolvency of the SPE’s management company, including its replacement pursuant to Article 33 of the Spanish Securitisation Law.

Under Spanish value added tax (VAT) legislation, the transfer of receivables is treated as a supply of services. Where the recipient of such services (eg, an SPE) is established for VAT purposes within the Spanish VAT territory, the transfer is subject to Spanish VAT, but may be exempt.

Any services rendered by the seller to the purchaser in connection with the collection of payments from the underlying obligors are treated as a separate supply for VAT purposes, the place of supply of which is determined by the purchaser’s VAT establishment.

The assignment of receivables may also be subject to stamp duty if it is formalised by public deed and certain other conditions are met. Applicable rates vary by region. Certain exemptions from stamp duty may apply, including in respect of assignments of mortgage market instruments.

The SPE is subject to corporate income tax (CIT) in accordance with Spanish law. While the SPE’s taxable base is calculated to approximate zero by offsetting financial income against financial expenses, certain provisions of the CIT Law may affect this position:

• the tax deductibility of impairment losses on debt securities held by the SPE is subject to specific rules under the CIT Law and related regulations;
• limitations on the tax deductibility of financial expenses may apply to the SPE; and
• income derived by the SPE from the credit rights is not subject to withholding tax on account of its CIT liability.

Payments made by Spanish obligors to a non-Spanish tax resident purchaser of receivables may be subject to Spanish withholding tax. The applicable tax treatment depends on the characterisation of the income and the purchaser’s tax jurisdiction.

However, such income may be exempt from Spanish tax provided that the purchaser:

• is resident for tax purposes in a member state of the EU or the European Economic Area, which is not a tax haven, and is the beneficial owner of the income;
• does not act, in relation to the purchase of the receivables, through a permanent establishment located in Spain; and
• is otherwise entitled to an exemption or relief under an applicable double taxation treaty.

The incorporation of the SPE is exempt from capital duty (operaciones societarias). No stamp duty is payable upon the incorporation or winding-up of the SPE.

Legal opinions will typically be obtained in respect of key taxation matters, including the tax treatment of the transaction itself and the tax consequences for investors in the notes issued by the SPE.

The primary accounting considerations in a securitisation context typically include the following.

• A review of the status of the receivables on the assignor’s balance sheet prior to the securitisation, to confirm that they are recorded as existing credit rights.
• The legal obligation for an SPE to prepare and audit its annual financial accounts.
• The requirement for credit entities transferring mortgage loans, pursuant to certain legal regimes, to establish and maintain a special accounting registry to record certain prescribed information. In particular, according to the regime envisaged under Royal Decree-Law 24/2021 (further described in 4.9 Banks Securitising Financial Assets) such entities have to create and update a special accounting registry to keep track of the following, among other matters:
1. the total mortgage pool;
2. the MPs and MTCs issued (as defined in 4.9 Banks Securitising Financial Assets);
3. the cédulas hipotecarias and bonos hipotecarios issued; and
4. the final balance of the eligible collateral available versus the already-issued transfer titles.

While accounting rules do not typically give rise to legal issues, a notable exception concerns the transfer of balloon instalments. In such transactions, it is critical to review the status of the receivables on the assignor’s balance sheet prior to securitisation to confirm that, unlike leasing instalments, such balloon loan instalments are correctly recorded as existing receivables.