Financial Assistance Facility Agreement between the European Stability Mechanism and the Kingdom of Spain

OFFICIAL BULLETIN OF THE STATE No. 296 Monday, December 10, 2012 Sec. I. Page 84465 I. GENERAL PROVISIONS MINISTRY OF FOREIGN AFFAIRS AND COOPERATION 14945 Financial Assistance Facility Agreement, made in Madrid and Luxembourg on November 29, 2012, and Transfer and Assumption Agreement, made in Madrid and Luxembourg on November 29, 2012. Correction of errors.

FINANCIAL ASSISTANCE FACILITY AGREEMENT BETWEEN THE EUROPEAN STABILITY MECHANISM AND THE KINGDOM OF SPAIN AS BENEFICIARY MEMBER STATE, THE BANK OF SPAIN AS CENTRAL BANK, AND THE ORDERLY BANK RESTRUCTURING FUND AS GUARANTOR

Index Clause:

1. Definitions and interpretation.
2. The Financial Assistance Facility and specific facilities.
3. Variations, supplements, or substitutions of the General Conditions and/or the Specific Conditions of the Facility.
4. Entry into force of the modifications.
5. Granting of the agreement.
6. Annexes. Annex 1: List of contacts.

This Financial Assistance Facility Agreement is entered into between: (1) The European Stability Mechanism, an intergovernmental organization created by the Treaty establishing the European Stability Mechanism, signed by the member states of the euro area, whose headquarters are located at 43, avenue John F. Kennedy, L-1855, Luxembourg, represented by Klaus Regling, Managing Director ("ESM"); (2) The Kingdom of Spain, represented by the Minister of Economy and Competitiveness, as the Beneficiary Member State (the "Beneficiary Member State" or "Spain"); (3) The Bank of Spain, represented by the Governor of the Bank of Spain (the "Central Bank"); and (4) The Orderly Bank Restructuring Fund, created in accordance with the Fund Legislation, represented by the President of the Orderly Bank Restructuring Fund, as Guarantor and agent of the Beneficiary Member State in the context of this Facility (the "Fund"), hereinafter collectively referred to as the "Parties" and, each of them, a "Party".

Preamble Considering the following: (A) The ESM was created by the Treaty establishing the European Stability Mechanism signed between the member states of the euro area (the "ESM Treaty") to mobilize funding and provide stability support for the benefit of ESM members experiencing, or at risk of suffering, severe financial problems, if such support is indispensable to safeguard the financial stability of the euro area as a whole and of its member states. (B) The ESM may grant financial assistance in accordance with financial assistance facility agreements through the disbursement of loans under precautionary credit lines and credit lines with reinforced conditionality, loans to ESM members in accordance with macroeconomic adjustment programs, facilities to finance the recapitalization of financial institutions of an ESM member state, and facilities for the acquisition of bonds in the primary and secondary markets, all of which are subject to strict conditions appropriate for each chosen financial instrument or instruments (each such loan or disbursement in accordance with such financial assistance facility agreement shall be referred to as "Financial Assistance"). (C) The ESM will finance the provision of Financial Assistance through the issuance or subscription of bonds, notes, commercial paper, debt securities, or any other financial mechanisms ("Financing Instruments") in order to finance the Financial Assistance jointly, through specific combined financing or from the Liquidity Reserve (defined in the General Conditions), as applicable. The Financing Instruments will be issued or subscribed autonomously or in accordance with one or more debt issuance programs (each a "ESM Debt Issuance Program"), in accordance with the ESM Debt Guidelines (defined in the General Conditions). (D) On June 25, 2012, Spain submitted to the President of the Eurogroup a request for a facility for the recapitalization of Spanish financial institutions. The facility was to be granted in accordance with the ESM Guidelines for the Recapitalization of Financial Institutions through loans to countries not covered by programs. (E) On June 29, 2012, the Heads of State and Government of the euro area indicated, in their Declaration of Heads of State and Government (the "Declaration of Heads of State and Government") that such financial assistance would be granted by the EFSF until the ESM began its operations, and that it would be transferred to the ESM without the latter acquiring priority in relation to such financial assistance. After the transfer, the parties would introduce the relevant modifications to take into account the institutional and procedural differences between the ESM and the EFSF. (F) The Declaration of Heads of State and Government also indicated that, when a single effective supervision mechanism with the participation of the ECB is established for the banks of the euro area, the ESM could, after an ordinary decision, have the possibility to recapitalize banking entities directly. Once such a decision is adopted and the direct use of bank recapitalization for financial entities in Spain is approved, either the relevant modifications will be introduced in this Agreement to give effect to such decision, or this Agreement will be replaced by a new one providing for the direct recapitalization of such entities. (G) On July 23, 2012, a Memorandum of Understanding ("MOU") was signed between the Commission, Spain, and the Bank of Spain, which established the specific horizontal elements for the country of the conditions linked to the provision of financial assistance. (H) On July 24, 2012, the EFSF, Spain, the Fund, and the Central Bank signed a Framework Agreement for Financial Assistance and a Bank Recapitalization Facility: Specific Conditions of the Facility (both "EFSF FAs"); (I) On November 28, 2012, in accordance with Article 49 of the ESM Treaty, the Board of Governors decided that the commitment of the EFSF to provide Spain with financial assistance in the form of a bank recapitalization facility would be assumed by the ESM to the extent that such commitment refers to the undrawn and unfunded parts thereof, and approved the terms of this ESM Financial Assistance Facility Agreement, including the financial conditions and relevant instruments, in which the terms are established according to which the ESM will provide its financial assistance to Spain, effective from the assumption of obligations and the acquisition of rights. Once the ESM assumes the commitments of the EFSF, acquires the rights thereof, and assumes the other obligations of the EFSF in accordance with the EFSF FA and the entry into force of this Agreement, the EFSF, Spain, the Fund, and the Central Bank shall be released from any future commitments or obligations under the EFSF FA, from the moment when the substituting commitments and obligations have been assumed by the ESM and the other Parties to the ESM FA. The Board of Directors of the ESM has approved the modalities of acquisition and assumption of rights and obligations, as well as this Agreement, and the Board of Directors of the EFSF has approved the modalities of the transfer. (J) The financial assistance to be provided to the Beneficiary Member State in accordance with this Agreement, including the Specific Conditions of the Facility (as defined below), shall be subject to the compliance by said State Member with the measures provided for in the Memorandum of Understanding. (K) Unless otherwise specified, the approval for the delivery of Financial Assistance in accordance with this Agreement, including the Facilities (as defined below), shall be subject to the Board of Directors concluding, based on reports from the European Commission (in coordination with the ECB), in conformity with Article 13(7) of the ESM Treaty, that the Beneficiary Member State has fulfilled the conditions inherent in this Agreement, including the measures provided for in the MOU. (L) It is recognized and agreed that the Central Bank is a party to this Agreement for the purpose of receiving disbursements on behalf of the Beneficiary Member State. (M) The authorities of the Beneficiary Member State will arrange and apply adequate measures for the prevention and fight against fraud, corruption, and other irregularities that may affect any Financial Assistance.

Taking into account the above considerations, the Parties agree as follows:

1. Definitions and interpretation 1.1 Subject to the provisions in clauses 1.2 to 1.5 below, clause 2 (Definitions and Interpretation) of the General Conditions shall apply to this Financial Assistance Facility Agreement. 1.2 In this Financial Assistance Facility Agreement, the following terms in capital letters shall have the meanings indicated below: By "Total Amount of the Bank Recapitalization Facility" is meant EUR 100,000,000,000. By "Total Amount of Financial Assistance" is meant EUR 100,000,000,000. By "Applicable Facilities" is meant the Facility or Facilities specified in clause 2.2 of this Financial Assistance Facility Agreement. By "Availability Period" is meant, in relation to each Facility, the period beginning on the date (inclusive) on which the Facility enters into force and ending on the Availability Period End Date (inclusive). By "Availability Period End Date" is meant, with respect to each Facility, the date specified below for that Facility: Facility | Availability Period End Date Bank Recapitalization Facility . . . . . . . December 31, 2013. By "Debt Agency" is meant the Public Treasury, whose administrative name is the General Secretariat of the Treasury and Financial Policy, an agency attached to the State Secretariat for Economy and Support for Business of the Ministry of Economy and Competitiveness. By "Designated Euro Account" is meant, for each Disbursement Date, the euro account of the Beneficiary Member State at the Central Bank, whose details shall initially be the following BIC ESPBESMMFFA – payment module account in TARGET2 – Bank of Spain (in the event that the Financial Assistance is disbursed in cash) and BIC ESPBESM1AMF - Bank of Spain. FROB. FFA Account number 9032 in Iberclear (in the event that the Financial Assistance is disbursed in ESM debt securities), taking into account that it may be modified temporarily or permanently by written notification from the Central Bank addressed to the ESM and that the ECB must inform about such change (with a copy to the Beneficiary Member State) no later than two (2) Business Days before the Disbursement Date. By "Specific Conditions of the Facility" is meant the standard terms applicable to a specific category of Facilities as set out in the ESM Standard Specific Conditions of Facilities, signed by the Parties for authentication purposes on the date of this Agreement. By "Fund Legislation" is meant the Royal Decree-Law of June 26 on bank restructuring and strengthening of the own resources of credit institutions (with its modifications and supplements and the texts that replace it). By "General Conditions" is meant the General Conditions of the ESM Financial Assistance Facility Agreements, signed by the Parties for authentication purposes on the date of this Agreement. By "Responsible Legal Authority" is meant the State Attorney's Office - Directorate of the State Legal Service, of the Beneficiary Member State. By "Maximum Weighted Average Maturity" is meant, with respect to each Facility, the Maximum Weighted Average Maturity specified below for that Facility: Facility | Maximum Weighted Average Maturity Bank Recapitalization Facility . . . . . . . Twelve point five (12.5) years. By "Maximum Maturity" is meant, with respect to each Facility, the Maximum Maturity specified below for that Facility: Facility | Maximum Maturity Bank Recapitalization Facility . . . . . . . Fifteen (15) years. By "Minimum Redemption Amount" is meant EUR 100,000,000. By "Minimum Voluntary Prepayment Amount" is meant EUR 100,000,000. By "MOU" is meant the Memorandum of Understanding (with any eventual modifications or supplements introduced therein) concluded between the Commission, the Beneficiary Member State, and the Bank of Spain on July 23, 2012. 1.3 The General Conditions and, with respect to each Facility referred to in clause 2.2 of this Financial Assistance Facility Agreement, the Specific Conditions of the Facility shall be incorporated into this Financial Assistance Facility Agreement, subject to any modifications, supplements, or substitutions of (a) the General Conditions established in clause 3.1 of this Agreement or (b) the corresponding Specific Conditions of the Facility provided for in clause 3.2 of this Agreement. 1.4 Clause 1.2 of the General Conditions and clause 4 of the Initial Provisions of the Specific Conditions of the Facility shall apply in the event of incompatibility or conflict between this Financial Assistance Facility Agreement, the General Conditions, and the Specific Conditions of the Facility. 1.5 If the Board of Directors of the ESM adopts new General Conditions or new Specific Conditions of the Facilities, or approves any modifications to the General Conditions or the Specific Conditions of the Facilities, they shall not be automatically incorporated into this Financial Assistance Facility Agreement. If the ESM and each of the Parties to this Financial Assistance Facility Agreement intend to incorporate the new or modified General Conditions or Specific Conditions of the Facilities into this Agreement, this shall be done by modifying this Agreement in writing, carried out in accordance with clause 4 thereof (prior to receipt of all approvals required under the ESM Treaty to authorize such modification).

2. The financial assistance facility and specific facilities 2.1 The ESM shall make available to the Beneficiary Member State, in accordance with this Financial Assistance Facility Agreement, a financial assistance facility (the "Financial Assistance Facility") for the Total Amount of Financial Assistance, subject to the terms contained in the MOU, the General Conditions, and the corresponding Specific Conditions of the Facility. The ESM may make the Financial Assistance Facility available to the Beneficiary Member State in the form of Financial Assistance. The total outstanding principal of the Financial Assistance under all Facilities shall not at any time exceed the Total Amount of Financial Assistance. 2.2 The Financial Assistance Facility may be provided in the form of the following specific facility (the "Facility"), namely, the bank recapitalization facility (the "Bank Recapitalization Facility"), with a Total Amount of the Bank Recapitalization Facility of EUR 100,000,000,000, subject to the terms and conditions provided for in the Specific Conditions of the Facility titled "Bank Recapitalization Facility: Specific Conditions of the Facility". 2.3 The ESM shall not be authorized to provide any Financial Assistance under a Facility except as provided in the Agreement and in accordance with the conditions set forth therein. The Beneficiary Member State shall not be obliged to make any Request for Funds under a Facility nor to acknowledge any Acceptance Notice. 2.4 The Preamble and Annexes to each document forming part of the Agreement constitute an integral part thereof now and in the future.

3. Variations, supplements, or substitutions of the general conditions and/or the specific conditions of the facility 3.1 The following variations, supplements, or substitutions shall apply with respect to the General Conditions: With regard to the General Conditions: (a) Regarding the definition of "Admissible Encumbrances", a new subparagraph is added: "(xi) any encumbrances (if any) granted or resulting from any type of credit line or secured "repo" instrument subscribed by the Debt Agency for precautionary or liquidity management purposes." (b) At the end of clauses 6.2.13 and 6.4, the following phrase shall be added: "provided that and to the extent that the granting of such guarantee does not contravene applicable laws or commitments." (c) In clause 6.2.13, the phrase "the national recapitalization fund (if any)" shall be deleted and replaced by "the Fund". (d) At the end of clause 6.6, the following phrase shall be added: "provided that and to the extent that the granting of such guarantee does not contravene applicable laws or commitments." (e) Clause 8.8.3 of the General Conditions shall not apply. (f) In clause 8.8.4, the phrase "or in accordance with any bond or loan owed to any other creditor" shall be added before the phrase "the ESM recognizes and accepts". (g) In clause 8.8.4, at the end of the penultimate sentence, the following phrase shall be added: "such that the total amount that the Beneficiary Member State must repay, together with the corresponding amounts that said Beneficiary must return to the IMF or in accordance with any facilities provided by Financial Support Providers, the European Union (or one of its institutions), or any bond or loan owed to creditors, shall be equal to the amount fixed in accordance with clause 8.8.2 (and understanding that, when applying the methodology provided for in clause 8.7, loans or bonds owed to creditors for which mandatory prepayment is activated must be taken into account)." (h) In clause 10 (Events of Default): (i) the phrase "if any" shall be added at the beginning of clause 10.1.7; and (ii) A new clause 10.4 shall be added: "10.4 When deciding whether to send a notice of default and/or to cancel or accelerate, in whole or in part, one or all of the Financial Assistance made available and outstanding under the Facilities, the ESM shall take into account the Total Corresponding Indebtedness of the Beneficiary Member State and, in particular, with regard to the Events of Default provided for in clauses 10.1.5 to 10.1.9, the total amount of said Corresponding Indebtedness that is outstanding for payment or subject to acceleration."

3.2 The following variations, supplements, or substitutions shall apply with respect to the Specific Conditions of the Facilities mentioned below: With regard to the Bank Recapitalization Facility: Specific Conditions of the Facility: (a) Clause 3.2 of the Specific Conditions of the Facilities shall not apply, and shall be replaced by the following: "after completing the procedures provided for in Article 40 of the ESM Treaty, the Board of Governors has approved the assumption by the ESM of the obligations arising from the Agreement, and the Board of Directors has approved the conditions established therein"; (b) With regard to clause 5 of the Specific Conditions of the Facilities, the following is added: "5.3 The obligations of the Beneficiary Member State with respect to the Bank Recapitalization Facility shall have the same priority as all other present and future loans and obligations, unsecured and unsubordinated, of the Beneficiary Member State arising from its present or future Corresponding Indebtedness. Furthermore, the Beneficiary Member State and the Fund undertake and declare that the obligations of the Fund with respect to the Bank Recapitalization Facility shall have the same priority as all other present and future loans and obligations, unsecured and unsubordinated, of the Fund arising from its present or future Corresponding Indebtedness". (c) In clause 5.1 of the Specific Conditions of the Facilities, after the phrase "to appoint an observer" the following shall be added: "(chosen with the consent of the Beneficiary Member State and the Fund, understanding that, in case of disagreement on the appointment of the observer, the choice thereof shall correspond to the Commission)". (d) In clause 7.2 of the Specific Conditions of the Facilities, the phrase "at the end of the Availability Period, or on the earlier date specified in the Financial Assistance Facility Agreement" shall be deleted and replaced by "July 15, 2014."

4. Entry into force of the modifications Any modification or waiver of the conditions of this Financial Assistance Facility Agreement shall be subject to a written agreement signed by the ESM (prior to receipt of all approvals required under the ESM Treaty to authorize such modification), the Beneficiary Member State, and each of the other Parties to the Agreement. After its signature by all Parties, the entry into force of any modification of this Agreement that adds a new Facility and provides for the application of additional Specific Conditions of the Facilities or in substitution of existing ones, shall be subject to the receipt by the ESM of the legal opinion referred to in clause 4.1 of the General Conditions with respect to the modification of this Financial Assistance Facility Agreement and with respect to the incorporation of such additional Specific Conditions of the Facilities or in substitution of others.

5. Granting of the Agreement

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