SPAIN Law and Practice Contributed by: Ángel Pérez López, Luis Jiménez and Rodrigo del Saz, Uría Menéndez
bers on a bilateral basis with the Target or local subsidiaries to support their own local business. These working capital facilities are usually pro- vided by banks, provided that other players do not have the capacity or structure required to provide these kinds of facilities. Each of the facilities or tranches has different terms for utilisation, margin, maturity, interest rate, fees, etc. As a general rule, the maturity often includes a balloon mechanism that could potentially be refinanced in the following five to seven years. Senior-term facilities granted to the Target would be structurally senior to those granted to the SPV given that they are closer to the source of the cash flows. Nevertheless, the senior facil- ity agreement and the intercreditor agreement usually correct this structural subordination by requiring that the facility agent distribute the pro- ceeds pro rata among the senior lenders. Syndication is also common, although borrow- ers normally restrict access to lenders who are not subject to withholding tax (qualifying lend- ers). 3.2 Mezzanine/Payment-in-Kind (PIK) Loans Mezzanine facilities are coming back to the Spanish markets. Typically, mezzanine lenders have been banks that also participate in the senior syndicate, although alternative lenders and institutional investors are developing an appetite for such instruments. Mezzanine facili- ties are structured as senior acquisition facilities and consist of term loans to be utilised for the purpose of acquiring the target. As mezzanine facilities are junior debt to the senior facilities, they are structured as bullet repayments, have longer maturity dates and, if secured, are on
a junior-ranking basis. Prepayment events are aligned with those of the senior debt but, as jun- ior debt, mezzanine loans are only paid after the discharge of the senior facility. However, in many other respects, the mezzanine facility mirrors the senior facility. Although not essential to Spanish structures, mezzanine facilities may also be structurally sub- ordinated to senior facilities. Structural subordi- nation may be achieved by creating a holding company, either in Spain or abroad (Luxembourg has recently been the preferred location), that owns 100% of the SPV and receives the mezza- nine financing to subsequently transfer the funds to the SPV through intercompany loans. 3.3 Bridge Loans Traditionally, bridge facilities have been used when the acquisition price must be paid or a specific project is due to start and the debt refi- nancing process for the target cannot be set up prior to the closing of the transaction. Bridge facilities are also common in tender-offer acqui- sition finance structures. Stepping up the inter- est rate of bridge facilities or their short maturity will normally generate an incentive for the bor- rower to refinance. 3.4 Bonds/High-Yield Bonds As bonds are normally listed (and due to their issuance and funding mechanics), they are not a suitable instrument for financing an acquisition in the Spanish market. Sponsors and purchas- ers usually require a certain funds commitment at the signing date and for the period until the closing date. Those commitments and the agility required at closing to fund the payment of the purchase price make bonds less attractive for purchasers.
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