International rolling stock financing in Spain

Security over rolling stock under Spanish law would be by way of chattel mortgage (hipoteca mobiliaria).

A chattel mortgage must be created as a notarised public deed. It also needs to be registered in the movable goods registry. Hence it will incur stamp duty, notary charges and registry fees.

Additionally, in order for the mortgage to be validly created under Spanish law, the railcars must be located in Spain (i.e. physically in Spain and/or registered with the Spanish special administrative registry, which implies that each railcar must be identified with a Spanish registration number). However, in the event that the railcars will be operating not only in Spain but also in other countries, no Spanish registration number is required and they can maintain the registration number of the country in which they are registered.

It should be noted that in Spain every mortgage needs to be created as security for a maximum amount (secured amount) which is normally between 120% and 130% of the principal amount of the secured loan. This secured amount needs to be allocated to the principal, ordinary and default interests and costs and expenses secured. Stamp duty is payable on the secured amount. 

For the valid registration of the mortgage over rolling stock there are several points to take into account:

• the mortgage agreement must identify:
  • the creditor, the borrower and, as the case may be, the owner of the mortgaged assets
  • the assets being mortgaged in sufficient detail (including, without limitation, nature, quantity, quality, distinguishing characteristics). In this regard, it must contain: (i) type of vehicle and manufacturer; (ii) engine and chassis number; (iii) vehicle registration number; (iv) number of cylinders and HP power; and (v) category and number of the registration certificate and place and date in which it was issued. 
  • Further, if the mortgaged assets are wagons, it must state whether they are open or closed and the type of service for which they are intended. If they are open, it must indicate whether they are platform or edges; and if they are closed, it must indicate whether they are tanks, cages or simply closed. Wagons must also be identified by the series and axles number, load, manufacturer, year of construction and any other details deemed necessary in each case.
  • the property title and representation by the mortgagor that it is free of any liens. The ownership must be proven and, in the event that the property title is a sale and purchase agreement, the payment of the whole price must also be proven
  • amount, in local currency, of the secured principal, the period for its repayment, the interest rate and the amount agreed for costs and expenses. As regards a mortgage over several train wagons, the secured amount for principal and, where applicable, for interests and costs and expenses, must be distributed among them
  • address for notifications to the debtor and, as the case may be, the mortgagor non-debtor.
• the mortgage deed must attach a third party valuation of the mortgaged assets
• the mortgaged assets must be insured for an amount equal to or greater than the total amount of the secured amount.

Security over leasing receivables under Spanish law would be by way of an ordinary pledge.

For the pledge to be effective against third parties (including the insolvency administrator of the assignor), it must be created as a notarised public document, hence notarial fees will be incurred. It does not, however, need to be registered so no registry fees or stamp duty would arise.

Additionally, the debtor under the receivable right being pledged (i.e. the lessee) is normally notified of the creation of the pledge. It should be noted that this is not strictly a perfection requirement and, in fact, in many cases it is agreed that the debtor will only be notified of the pledge following a default of the borrower. However, although not a perfection requirement, in practice it is widely considered preferable to serve notice to the debtor on execution of the pledge as this binds the debtor to follow the relevant payment instructions and prevents the risk of leakage in the event of insolvency of the pledgor.

A contractual restriction on assignability of the lease agreement will not affect the validity of the security created over the receivables arising out of such agreement. However, if there are contractual restrictions specifically limiting the ability of the creditor to assign its credit rights (receivables) under the agreement, no effective security may be created over such credit rights contemplated unless a waiver or consent is obtained from the debtor.

The global assignment/pledge of all present and future (lease) receivables will not be effective vis-à-vis third parties (and accordingly will not resist the insolvency of the pledgor). In order to make the pledge insolvency remote, it must be created over specific agreements which are properly identified.

Receivables arising under future lease agreements (i.e. those entered into after the date of the original pledge) will only be captured if an extension of the original pledge is formalised at the time, including a specific reference to the new lease agreements (this can be made using irrevocable powers of attorney in favour of the pledge granted concurrently with the original pledge).

Security over shares under Spanish law would be by way of ordinary pledge.

For the pledge to be effective against third parties (including the insolvency administrator of the assignor), it must be created as a notarised public document hence notarial fees will be incurred. It does not, however, need to be registered so no registry fees or stamp duty would arise.

The Notary Public needs to perform its own due diligence on title and capacity. Therefore, the pledgor is typically required to provide the Notary Public with the original title of ownership over the shares (i.e. deed of incorporation of the company, share purchase agreement or deed of capital increase). 

Additionally, the creation of the pledge must be recorded in the registry book of the company’s shareholders.

Enforcement of a pledge over shares is done by public auction, judicial sale or an extrajudicial execution proceedings. The main difference between these proceedings is that a judicial proceeding is carried out before a judge and an extrajudicial proceeding is carried out before a Notary, which is normally the faster option.

Under Spanish law, rolling stock shall be subject to the law of their place of registration (lex registri). Irrespective of any express choice of governing law in a sale and purchase agreement of railway assets (for which no specific requirement exists under Spanish law), there is a requirement of Spanish law for rolling stock circulating in Spain to be registered with the Special Railway Register.

As to the creation of security over rolling stock, the Spanish Chattel Mortgage Act will be applicable for rolling stock owned by a resident in Spain and registered with Spain’s Special Railway Register. The Spanish Chattel Mortgage Act prohibits the exit from Spanish territory of rolling stock charged with a mortgage, unless the mortgagee expressly consents to it.

In the absence of more detailed regulation in force (such as the framework of the Cape Town Convention), general rules of Spanish law will allow foreign law security to be recognised in Spain subject to the provision of expert evidence before the Spanish Courts regarding the foreign law security. It is uncertain whether an attempt to enforce in Spain a foreign law security on such grounds would be successful or not.

Non-possessory foreign law security which is not evidenced by any kind of public act may also be recognised in Spain provided sufficient foreign law evidence is available. 

Under Spanish law, the general rule is that the pledge will be governed by the law of the country where the pledged goods are located (i.e. lex rei sitae). As a result of this, in the case of receivables the generalised market practice involves the pledge being governed by the law governing the receivables pledged, i.e. if the underlying agreements creating the receivables are governed by Spanish law, the pledge should be governed by Spanish law.

However, there is no legal impediment for the pledge agreement to be governed by a different law in accordance with Article 14 of Regulation (EC) No. 593/2008 (notwithstanding the fact that enforcement in Spain of a foreign law pledge might be substantially more difficult in practice).

Foreign law security over receivables may be recognised under Spanish law by means of foreign law evidence. However, this would require expert evidence before the Spanish Courts regarding the foreign law security.

An outright assignment of receivables within the context of a management agreement would be valid and enforceable. However, it is important, although it is a complex task, that the origin of the receivables being pledged is ascertainable and that the receivables are specifically identified by their source. 

Yes. Under Spanish law this would typically be documented as an ordinary pledge in favour of the finance parties/security trustee.

In order to reduce the risk associated with an insolvency of the manager, the assignment should be documented as an outright assignment granted in a notarial document and, as explained above, the origin of the receivables being assigned must be ascertainable and the receivables must be specifically identified by their source.

However, if the lease agreements are signed by the manager, but acting in the name and on behalf of the borrower (instead of in its own name), and the borrower is accordingly designated as the creditor under such lease agreements, the effects of an insolvency of the manager are further minimised.

In general, it should also be taken into account that under Spanish insolvency laws, any act carried out by an insolvent debtor within 2 years prior to the date of insolvency and considered detrimental to its working capital may be voided. Voidability does not require an intent to defraud creditors.