Finance law opens up capital markets in Spain

A new catch-all finance law has been passed by the Spanish senate, allowing a significant number of modern financial transactions to take place on the country's capital markets

The Ley de Medidas de Reforma del Sistema Financiero – known as the finance law and passed by the senate last Tuesday (22 October) – introduces a number of reforms to the financial markets. Its encouragement of a number of new transactions, particularly involving public loans and credit derivatives, has got business lawyers excited about the prospect of a raft of deals set to take place on the Spanish markets.
The finance law permits private Spanish institutions to lend money to public bodies, something that was not previously possible in Spain.
Allen & Overy Madrid partner Iñigo Gomez-Jordana explained how this law will stimulate more foreign investment banking activity in the Spanish capital markets. “Imagine if a private pharmaceutical company is owed E2bn (£1.26bn) by a hospital. The theory is that the company can now issue debt guaranteed by the hospital's obligation to pay. An investment bank such as JP Morgan Chase or Goldman Sachs could then get involved and issue credits on the back of that loan,” he said.
Linklaters Madrid finance partner Iñigo Berrícano said that the finance law also clarifies the provision of bankruptcy protection on credit derivative deals for the first time. According to Gomez-Jordana, this legislation will give financial institutions more confidence to participate in such deals.
The finance law has courted much political controversy in Spain, not least because it has taken two years to go through parliament.