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Spanish law endorses a new class of senior "non-preferred" debt instruments (or senior second ranking notes): the starting gun has been fired

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Poole-Warren Charles
Charles Poole-Warren



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Rojo Alvaro
Alvaro Rojo

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26 June 2017

​Royal Decree-Law 11/2017 of 23 June on urgent actions on financial matters (RDL 11/2017) has recently been approved by the Spanish Government. RDL 11/2017 (3rd paragraph of Article 3) has amended Law 11/2015 (implementing BRRD in Spain) which establishes the hierarchy of claims in case of resolution and insolvency of a Spanish credit institution and the Securities Market Act.  As amended, Law 11/2015 fires the starting gun for the issuance of mandatorily recognised senior “non-preferred” debt instruments by Spanish credit institutions. Spanish credit institutions may begin preparing the documentation for standalone or programme issues of senior non-preferred debt instruments.

According to the 14th Additional Provision of Law 11/2015 (as amended) senior debt instruments complying with the requirements set out below will rank as senior unsecured (créditos ordinarios) non-preferred debt instruments and therefore junior to the rest of senior ordinary claims set out in Article 89.3 of the Spanish Insolvency Law.

Senior non-preferred debt instruments must comply with the following requirements:

1. They must be issued with an effective maturity of one year or more;

2. They must not have the same features as derivative financial instruments; and

3. They must include a contractual clause establishing that they rank junior to the rest of senior ordinary claims such that any claims arising from these financial instruments will be satisfied only when the reminder of senior ordinary claims have been satisfied in the issuer’s insolvency proceedings.

Senior non-preferred claims will rank senior to all subordinated claims set out in Article 92 of the Spanish insolvency Law. RDL 11/2017 also adapts the bail in order in Article 48.1 of Law 11/2015 accordingly.

As such, RDL 11/2017 allows for the issuance of senior non-preferred debt instruments by Spanish credit institutions. Within 30 business days, the RDL has to be submitted for ratification by the Spanish Congreso de los Diputados (the equivalent to the House of Commons). The Congreso takes the decision in plenary session. The Congreso has three options: to ratify it in full without changes, reject it or submit it to Parliamentary scrutiny. The 30 business days is a maximum deadline so the ratification may happen much earlier. In any case, Spanish credit institution issuers may begin preparing the documentation for standalone or programme issues of senior non-preferred debt instruments.

The recitals of RDL 11/2017 make reference to “contractual” senior non preferred-notes.

Finally, RDL 11/2017 amends Article 217.3 of the consolidated text of the Securities Market Act. The purpose of this amendment is to classify senior non-preferred notes as complex products for MiFID purposes. The implication is that these debt instruments will require in all cases at least an appropriateness test under MiFID regime.


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