SPAIN Law and Practice Contributed by: Antonio Paredes, Carlos Saldaña, Manuel Martínez and Román Mejías, ZADAL
rity. In public take-privates, bidders may need a bank guarantee or cash deposit evidence, so private credit is often paired with a credit institution guarantee to support “certain funds” credibility. 3.5 Debt Buyback General Permissibility Under Spanish Practice Debt buybacks by the borrower or sponsor are gener - ally possible in Spain, but they must fit within general corporate and insolvency guardrails and, in practice, are mainly controlled by the credit documentation. Facilities typically restrict buybacks to defined per - mitted mechanics and caps, require conditions such as no default and use of permitted funds, and address creditor-equality and conflict risks through transpar - ency and voting/disenfranchisement rules for affiliate- held debt. The key objective is to allow economic flex - ibility without distorting decision-making, priority or enforcement dynamics within the lender group. 3.6 Recent Legal and Commercial Developments Recent Drivers of Documentation Changes Recent changes to private credit documentation in Spain have been driven less by Spain-specific stat - utes and more by (i) tighter, more technical EU compli - ance expectations (notably stronger AML/sanctions representations, beneficial ownership transparency and, increasingly, ESG/SFDR-aligned disclosure asks from institutional investors); (ii) heightened focus on workout readiness after a higher-rate cycle (more detailed reporting packages, cash-leakage controls, clearer transfer/disenfranchisement mechanics and more precise “sacred rights” and amendment provi - sions); and (iii) greater competition between banks, public markets and private credit, which has pushed borrowers to negotiate more flexibility in baskets, definitions and covenant intensity for stronger credits while lenders respond by tightening drafting around security, intercreditor priorities and enforcement trig - gers.
subordinated HoldCo financings to support the equity cheque or add leverage where senior capacity is lim - ited. Hybrid solutions may also take the form of pre - ferred equity or equity-linked instruments, particularly in sponsor-backed structures. Common Structures and How They Differ From Senior Secured Documentation Compared with senior secured deals, documentation is usually more bespoke and centred on subordina - tion and return mechanics. Intercreditor/subordination terms typically regulate payment blockages, standstill, enforcement limits and turnover, preserving senior control in downside scenarios. Commercially, junior/ hybrid providers often require higher pricing, more fre - quent PIK, lighter amortisation and sometimes equity participation, with covenants focused on leakage, structurally senior debt and change of control. HoldCo Deals: Security and Customary Collateral Package HoldCo financings are often secured, but collateral is concentrated at holding level and depends on upstream distributions. The usual package includes pledges over shares in key subsidiaries, security/ assignment of intra-group receivables (eg, sharehold - er loans), and, where workable, pledges over Hold - Co accounts receiving distributions. Effectiveness depends mainly on clean structuring, clear intercredi - tor mechanics and enforceability of share security. 3.8 Payment in Kind/Amortisation PIK and Amortisation in Spanish Private Credit PIK is used in Spain but is more common in junior, hybrid and HoldCo financings than in mainstream sen - ior secured direct lending, where returns are typically cash-pay and PIK is added selectively to bridge lev - erage or manage cash-flow pressure. Amortisation is deal-dependent: many sponsor-backed senior facili - ties are largely bullet with little scheduled amortisation, while lenders push for more amortisation in weaker or cyclical credits; in all cases, documents often pair light amortisation (or none) with cash-leakage limits and mandatory prepayment triggers to protect downside.
3.7 Junior and Hybrid Capital Junior and Hybrid Capital in Spain
Junior and hybrid capital is most commonly provided as subordinated debt behind senior secured facilities, including second lien/subordinated OpCo term loans, mezzanine with cash-pay plus PIK, and structurally
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