NEWSLETTER
ON ROYAL DECREE-LAW 6/2013 OF 22 MARCH ON PROTECTING HOLDERS OF CERTAIN
SAVINGS AND INVESTMENT INSTRUMENTS AND OTHER FINANCIAL MEASURES
Yesterday, 24 March 2013, Royal Decree-Law 6/2013 of 22 March,
passed by the Council of Ministers last Friday, entered into force. The
main purpose of this new Royal Decree-Law is to protect holders of
hybrid instruments that have been issued by credit entities “in crisis”.
In essence, this protection involves, in specific cases, facilitating
access to arbitration as a form of dispute resolution and providing
liquidity to the shares that the holders of these instruments receive
when exchanging them.
The most significant issues regulated in this Royal Decree-Law are
the following:
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1. MEASURES TO
PROTECT SPECIFIC INVESTORS OF HYBRID INSTRUMENTS
Within the context of public action taken in the crisis of Spanish
credit entities and, in particular, in relation to the impending
subordinated liabilities exercises involving hybrid capital instruments
and subordinated debt, the need to establish a legislative framework
giving temporary protection to specific holders of hybrid instruments
has been addressed. It is important to clarify that these measures will
only apply to entities “in crisis”, according to the nuances specified
below.
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1.1. Definition
of criteria to facilitate the access to arbitration
In order to give investors in preference shares and subordinated debt
the possibility of settling disputes involving these instruments through
arbitration, the “Monitoring committee for hybrid capital instruments
and subordinated debt” (the “Committee”)
(see section 2) has been commissioned to define the basic criteria to
determine access to this route. The criteria must be set within 20 days
of 24 March. The Royal Decree-Law does not establish any additional
provision in relation to the arbitration proceedings, nor does it
clarify how the criteria will be applied with those of entities that
already have arbitration mechanisms in place for their hybrid
instruments.
The criteria must be adopted by all the entities in which the Fund
for Orderly Bank Restructuring (“FROB”)
“participates”; this means under the terms of reference of the
Memorandum of Understanding signed by the Eurogroup: in principle, all
the Group 1 entities and the Group 2 in which the FROB has a
shareholding.
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1.2. Purchase of
shares resulting from the subordinated liabilities exercises
The role of the Deposit Guarantee Fund for Credit Institutions (“FGD”)
is also temporarily broadened to allow the acquisition of ordinary
shares that are not admitted to listing on a regulated market and have
been issued under a subordinated liability exercise under Law 9/2012.
The Royal Decree-Law provides that this measure applies to all the
entities that are currently facing resolution or restructuring processes
(i.e., Group 1 and 2 entities) and which shares are not listed on the
regulated markets (and which restructuring plans do not foresee this
happening in the future), and not only to the entities in which the FROB
“participates”.
On the other hand, the Royal Decree-Law states that the acquisition
of these illiquid shares must be done in accordance with the European
Union legislation on state aid and that their acquisition price can
under no circumstances exceed their market value (as determined by the
independent expert who will be appointed for such purposes). Therefore,
a new valuation of these shares will be determined for the purposes of
their acquisition by the FGD, which could be different to the valuation
used for the exchange of the hybrid instruments.
Finally, although the Royal Decree-Law refers to the subordinated
liabilities exercises in general, pursuant to its preamble, it seems as
if the intention is to restrict this measure to mandatory exercises
(i.e., those that are binding on both the entity and its investors).
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1.3. Special
protection for individuals in need of assistance
The Royal Decree-Law provides additional protection to individuals
whose personal or family circumstances are particularly serious. This
extra protection is twofold: (i) arbitrations to settle their disputes
with entities are given priority, and (ii) the FGD will give priority to
the acquisition of their illiquid shares received in the subordinated
liabilities exercises.
1.4.
Beneficiaries of the protection measures
The Royal Decree-Law does not clearly state whether its protection
measures will benefit all the holders of hybrids or if some of them are
excluded. In referring to the criteria for access to arbitration, the
Royal Decree-Law refers to the possibility that “clients” may access it,
which could be understood as excluding holders that are not clients of
the entity (which is reasonable if the purpose of the arbitration is the
commercialisation of the hybrids created by the entities). However, no
similar indication is made for the FGD’s acquisition of shares, although
the preamble of the Royal Decree-Law justifies this based on the
difficulties that the lack of liquidity of their securities could
represent for retail customers, which in turn could indicate the
intention is that the FGD only grant liquidity to these type of
investors.
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2. Creation of the
Monitoring committee for hybrid capital instruments and subordinated
debt
A monitoring committee for hybrid capital instruments and
subordinated debt is created, which will analyse the factors that give
rise to the judicial and extrajudicial claims relating to the
commercialisation of these instruments by the entities in which the FROB
“participates”. It will also make proposals regarding the
commercialisation of these securities in the future and determine the
criteria for claims to be submitted to arbitration (see section 1.1).
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3. tasks of the fgd
3.1.
Specification of measures to implement European financial assistance
Since July 2012, one of the FGD’s tasks has been to adopt measures to
facilitate the provision of European financial assistance to
recapitalise Spanish credit entities. This new Royal Decree-Law has
specified some of these measures, establishing that the FGD may commit
its funds to (i) granting guarantees; (ii) acquiring shares and
subordinated debt issued by the Sareb; and (iii) acquiring unlisted
shares issued by credit entities as described in section 1.2.
In any case, the FGD will only commit to this assistance if its cost
is less than all the potential payments that it would have had to assume
to cover the guaranteed deposits when the restructuring and resolution
processes began.
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3.2. Financing
these measures. Extraordinary levy
In order to implement these measures, an extraordinary levy is
imposed on the entities adhered to the FGD with the following
characteristics:
- Amount: the annual
contribution of 2‰ of all deposits held as at 31 December 2012 is
increased (only once) by an additional 3‰.
- Payment: in two
tranches: 40% must be paid before 25 January 2014, while 60% must be
paid during the next seven years in accordance with the calendar to be
agreed by the FGD’s management committee. However, the management
committee could reduce the first tranche -offsetting it against the
second- by up to 50%.
- Exemptions:
the FGD’s management committee is granted the authority to
approve (with a majority of 2/3) the following exemptions in relation to
the first tranche: (i) 100% for entities facing restructuring or
resolution processes; (ii) up to 50% for entities of “small size” (whose
calculation base does not exceed EUR 5,000 million); and (iii) a
deduction of up to 30% of the amounts invested by the entities, before
31 December 2013, in the acquisition of shares or subordinated debt of
the Sareb. Under no circumstances can the first and second exemptions
exceed 90% of the amount that the entity in question must pay.
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