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Financial system Updated: 28 Jun 2017

The Government approves the issuance of senior non-preferred debt in Spain

This past 23 June, the Cabinet approved a new category of debt for issuance by all financial entities: senior non-preferred debt, which has the ability to absorb losses.

Debt emision bbva

This Royal Decree makes it legal under Spanish law to issue this new debt instrument, which has been recently created by the European Commission. The purpose of this instrument is to regulate the hierarchy of creditors that must assume losses when a bank in the Eurozone encounters insolvency problems.

Senior non-preferred debt will be eligible as capital under the TLAC/MREL regulation or, in other words, it will be able to absorb losses. For this purpose, such debt must meet a series of requirements: it must have an initial maturity of at least one year, have no derivative features, and its investors must assume losses prior to traditional senior issuances in the case where the entity in question is dissolved.

The Royal Decree also modifies the Securities Market Law such that such issuances are considered complex financial instruments to which only institutional investors have access.

When senior non-preferred debt is approved for issuance, Spanish banks will have yet another type of debt instrument that allows them to meet capital requirements and obtain financing to perform their principal activity: granting loans.