This page updated regularly deals with securitization developments in Spain. If you have any news or development to contribute to this, please write to me.
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More on Securitization in Spain
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Late breaking additions:
14th Jan 2003/ 13th Feb 2003: Market data for 2002 and prospects for 2003 – see our report here
18th Feb 2002: Market data for year 2001 have been incorporated.
9 Jan 2002: For a news report for issuance upto end of 2001, see our news page here
22 Oct 2001: For a news report for issuance upto 3rd quarter of 2001, see our news page here.
25th June 2001:
Spanish securitisation is completing a decade and Moody's releases a special report – see our news page here.
19th March 2001
For market updates for 2000 and the outlook for 2001, see our news report here.
3 May, 2000:
The entire page was revised and enlarged.
Added 2 April 2000
Spanish bank Banesto has proposed a mega securitization of mortgage loans –click here for the news item.
Added 8 Feb. 2000
Spanish Bank Banco Bilbao Vizcaya Argentaria is launching the first ABS issue in Spain – click here for the news item.
Added 8 Feb. 2000
Comprehensive article on Spanish securitization law from law firm Uria and Menendez, http://www.securitization.net/international/europe/sp_mortg.html
Added 1st Feb., 2000:
4 regional savings banks joined to launch 2000's first MBS issue – see news here.
For detailed treatment of mortgage-bond markets in Spain, please see this article on this site.
State of the Market:
The traditional mortgage funding product in Spain was the pfandbriefe – see more about this market in the link above. Securitization of the US-style was introduced only recently. Spain is one of those few markets where Government initiative has been behind the growth in securitisation markets. While securitisation transactions originated around 1991, the Government passed an enabling law in 1992. Over a period of time, the Government has been reshaping and reforming the law making it more permissive and market-friendly – the most recent legal initiative was taken in 1998. See below.
Spanish securitisation market for last many years has been a mortgage-dominated market. The first transaction in 1991 was one where Citibank Hipotecas I and Sociedad Española issued 19.8 billion pesetas (US$141 million) of "Participaciones Hipotecarias " (PHs) (participation certificates), secured by an issuer's specific portfolio of mortgage loans. There was an exceptional deal in 1996 to help the restoration of enterprises whose revenues were affected by the moratorium on the government's nuclear program.
Some innovative deals have been struck recently. For example, the Government subsidies to certain universities have been securitised enabling the universities to raise immediate funds. There has also been a securitisation of electricity bills receivables, to part finance the transition of the electric utilities: this is more or less on the lines of securitisation of stranded costs by US electric companies.
In 1998, the total volume of securitisation issues in Spain was estimated at around USD 4 billion. [Article in Lawmoney, April 1999].
In year 2001, this volume reached approx Eur 10 billion. Main market participants are banks and financial intermediaries including the local version of savings and loans companies (cajas).
Legal initiatives:
Historically, Spain has been a country following the civil law tradition, but securitization law presents an attempted shoehorning of a UK common law into Spanish legal framework. Not being a common law country, the concept of trusts is unknown in Spain. Similarly, mortgages of the UK common law type do not exist. Spain's own variant of land or property funding is called hipoteca, which has some similarities but many differences as compared to the UK mortgage system. The Spanish mortgage is limited only to immovable properties, cannot be negotiated, and needs compulsory registration. Under Spanish law, mortgages cannot be fractionalised or converted into securities as that would imply creation of a trust. In other words, in Roman Dutch law or Spanish law, there is no distinction between legal and equitable interests in property.
Apparently enough, as in any Roman-Dutch legal system, securitization would have been impossible except for a specific law.
The Government of Spain had taken early initiatives to promote securitisation markets. A law permitting mortgage securitisation was passed on July 7, 1992 enabling creation of "Fondos de Titulización Hipotecaria" or mortgage securitization funds. This law not only permitted transfer of mortgage receivables but also provided for removal of the transferred receivables from the books of the originator, as also bankruptcy remote provisions.
In 1994, the scope of the law was extended to securitisation of certain non-mortgage assets, particularly the nuclear moratorium compensation receivables.
However, the most remarkable was the Government's recent enactment being Royal Decree no. 926/1998 dated 14th May 1998. This enactment enables the creation of securitisation Fondos (funds) which are comparable to trusts under English law. These funds are managed by Sociedad Gestora de Fondos de Titulización as trustees.
The major provisions of this law are:
1) The permission to securitize all types of financial assets and future credit rights as trade receivables and toll road income. However, transactions based on future flows have to be notified to the Spanish Stock Exchange and to obtain the approval of the Spanish Ministry of Economy and Finance. The exception to this rule is the toll road income, already allowed in the Royal Decree.
2) The creation of open-ended structures. Previously, the Fondo expired once the bonds were redeemed. Now, the Fondo can add new assets (they must have similar features to the old ones) and issue new series of bonds.
3) A rating company must asses the quality of the bonds issued by the Fondo. CNMV can require a minimum credit rating regarding to the features of the assets and the bonds, although it is not yet clear what that minimum will be.
Because of typical limitations of Spanish law discussed above, the participation certificates issued by the issuers in Spain do not exactly involve an SPV who acts as a trustee for the investors: in fact, each investor acquires a fractional interest in the mortgage, title in which continues to be held by the originator. Thus, the originator cannot transfer the whole of the mortgage: at best, it can transfer only 99%. The investor, called the participant, can directluy sue the obligor.
For a detailed article by Sergio Nasarre-Aznar on the law of securitization in Spain, refer to Common law Securitization in civil law Spain International Financial Law Review; London; Mar 2000.