Secured Lending

Financing and secured loans in Mexico

How is the credit situation in your jurisdictions at the moment and have new tendencies developed over the last 12 month? Mexico's banking sector has been in a buoyant phase for years, and 2017 is no different. Tradicional and alternative credit spreads have expanded and diversified further, particularly in the emerging finance technologies sector (Fintech), which has seen a booming peer-to-peer lending and crowdfunding platform.

The International Monetary Fund considers the Mexican banking sector to be largely robust. Between 2014 and 2016, Mexico implemented a series of credit sector restructuring measures that strengthened credit sustainability. Are secured loans a regular business in your jurisdictions? Yes, secured credits are governed by civilian and trade law. Is there a particular set of regulatorial questions that a potential lender should consider when agreeing or concluding a secured credit arrangement?

Borrowers' representatives should have a corresponding authorisation (in particular, the right to make use of the borrower's property) to borrow the credit facilities and to comply with the documentation required to secure the security. Is there a particular set of regulatorial questions that a potential creditor should consider when agreeing or concluding a secured credit arrangement?

Creditors should take into account the following aspects when drawing on a secured credit facility: due care with regard to the collateral provided, type of collateral, interest on arrears, exchange rate. Creditors should exercise due care over the collateral provided by the debtor in order to prevent possible problems arising from pledges or charges on the collateral.

To the extent that the securities are immovable assets, creditors should check the ownership in the public register to determine whether the debtor is properly recorded as the holder and whether there are any liens or encumbrances. In the case where the securities are moveable assets, the creditor should check the individual register of moveable assets to see if there is any kind of charge on the assets.

Mortgage, pledging and guaranteed funds are the most commonly used forms of collateral provided in Mexico. In addition, the creditor should thoroughly analyze whether the value is sufficient to cover all the liabilities of the debtor, as well as those resulting from the loss. Usually the most appropriate kind of collateral depends on the nature of the credit.

Confidence in the warranty is regarded as the simplest to assert.

In Mexico, there are several operative secured financing operators, the most important of which are: multinational and domestic business banking groups, non-bank financing entities, mutual fund managers, risk capitals and risk investment groups, state owned financing entities, enterprises of financing technologies (Fintech). Does your legal system use customary facilities documents for secured credit operations?

Yes, in Mexico collateralised credit operations are carried out using normal investment documents. Structuring a secured credit transaction is based on the following documents: management and sources of funds; unencumbered pledged assets; company guarantees. Does your legal system typically have secured credit syndication arrangements? Loans secured by syndication are typically large-volume. This is not always the case, however, and a separate credit line can be used to include the debts in a receivable.

The same also holds true for collateral provided under a tender agreement. In your jurisdictions, does the Act allow collateral and warranties to be fiduciarily retained by a collateral fiduciary for the account of the bank consortium? Yes, setting up a surety fund is one of the most frequent ways of securing a mortgage.

A banking consortium is designated as the recipient under the trusts and the fiduciary can initiate an out-of-court process to enforce the security if the debtor fails to meet its financial covenants. In the case of secured financial operations for SEVs (Special-Purpose Vehicles, SPVs), is it customary to use the asset to be funded for safekeeping?

As a rule, would collateral be provided for the SPV units or would creditors demand immediate collateral? A SPV's characteristic feature is a guaranty and an administrative trustee, in which the creditor is nominated as the first recipient. Collateral on the SPV's interest is more usual in financing projects when the SPV is organised as a public limited company and the immediate collateral (under management and guarantee) is used for the financial resources to be funded.

In order to establish whether an interest charge is at proliferation risks, the Court analyses: the interest charges used by banks in similar operations; the nature of the relation between the contracting entities; the contracting entities and whether the creditor is a Regulated entity; the amount of the credit; the duration of the credit; the warranties provided; the level of inflation; all other similar terms.

Generally, the provision of warranties depends on the nature of the warranty and the value of the collateral used. Warranties can be: ownership warranties (e.g. on the borrower's immovable or moveable property). A land plot surety, where the collateral provided is immovable property (e.g. mortgages or fiduciary property), must be guaranteed in written form, certified by a notary and entered in the public register of ownership of the state in which the immovable is situated.

If the collateral on moveable assets is pawned (e.g. mortgages, non-possessory mortgages and trusts), it must also be in written form and entered in electronic form in the individual register for moveable assets of the public commercial register. The pledging of stocks does not need to be certified or entered in the individual register of mobile warranties.

In order to pawn shares that have been quoted openly, a pawn contract must be concluded and an open bank custody account opened. The pledging of intellectual property must be accompanied by a contract of lien which must be notarized and recorded with the Mexican Institute of Industrial Property. In the case of ship mortgages, the mortage must be obtained before the ship's registrar and recorded in the ship's register.

In the case of airplane loans, the loan must be obtained before a civil law attorney and entered in the Mexican aviation register. The enforcement of collateral rights vis-à-vis third persons necessitates entry in the official land register or, if appropriate, in the commercial register. Registering does not necessarily establish a right of ownership, but has advertising objectives.

Warranties may not be enforcable if the relevant creation procedures are not complied with or if there is a third person with a better interest in the secured item before the lien is recorded (e.g. if a third person has recorded a lien on the same item before a third person's lien, such as a confiscation, has been recorded in the past).

In the case where the securities are a mortgages and are not entered in the public property register, they are not enforceable against third persons. Thus, if a debtor assigns the secured assets to a third person, the third person will acquire them in good faith. 3. Once the assignment has been properly recorded in the public register, the mortgages cannot be enforced against this third person.

Outline the most commonly used ways to structure the priorities of debt and collateral. Is there any tax, stamping tax or other charge to be paid when a credit, surety or interest is granted or enforced? There are, however,: entry charges for warranties of property investments (the costs of which depend on the state in which the property is located); trustee charges if the securities are held by a guaranteed fund.

The New York Courts are the most frequently chosen jurisdictions for cross-border credit. Safety documentation is (and should be) subject to the laws of Mexico if the secured asset is located in Mexico. Is there any restriction on lending by or the provision of collateral or guarantee to non-resident creditors?

Creditors should be aware, however, that the Constitution of Mexico prohibits aliens from keeping property within the restriction zone (a 50 kilometer broad stripe along the coast of Mexico and a 100 kilometer broad area along its borders). Appropriate measures should be put in place to counter this ban if a non-resident creditor wishes to take over a charge within the exclusion zone.

Is there any control on currency that restricts payment to a non-resident creditor under a securities instrument, bond or credit contract? It is possible to establish a lien over all of a company's financial instruments? Assuming so, would a lump-sum collateral arrangement be sufficient or is a lump-sum collateral arrangement necessary for each kind of financial instrument?

Yes, it is possible to establish a lien over all of a company's financial instruments. It depends on the nature of the underlying financial instrument and the nature of the transactions whether a particular collateral arrangement is adequate or whether it is necessary to enter into individual arrangements. Flat-rate mortgages are only available for movables. In the case of non-pledged mortgages, the mortgaged values can be described as generic and a non-pledged contract of lien is enough.

An interest may be created in all the company's property. A fiduciary contract is necessary in this case. If, for example, a creditor provides a lien on its claims, a non-ownership lien is adequate. Under the assumption that supplementary securities are involved, the Mortgagor shall provide a right of lien over his property.

This requires a discrete mortgages contract, unless the amount of the credit line warrants the use of a guaranteed trustee contract (trust charges are usually high). An individual trustee may be used to enter into a collateral arrangement for the borrower's receivables and the borrower's properties.

How do you formalise the provision of collateral for the most popular types of investment? For the most popular types of property, the procedures for providing collateral will vary depending on the nature of the collateral arrangement. In order to approve a collateral for property (e.g. mortgages and guarantees trusts), the deletion of the collateral must be certified by a notary and entered in the public property register.

Movables In order to obtain the discharge of a collateral on moveable goods secured by an unencumbered lien and fiduciary relationship, the discharge of the collateral right must be certified by a notary and deposited electronic with the Individual Register of Moveable Securities of the Public Commercial Register. Once the IP is contained in the secured asset, the clearance must be further formalized with the Mexican Institute of Industrial property.

In the case where the guaranty was provided by a guaranty fund, the creditor benefiting from the fund shall require the fiduciaries to free the property provided as such. Is it possible to provide collateral for property? And if so, what are the most commonly used securities for property and what is the process?

Yes, securities can be provided for properties. There are two types of collateral provided for properties: mortgage loans and guaranteed funds. Mortgage loans and fiduciary contracts must be concluded in written form and certified by a certified solicitor. In addition, both must be entered in the official property register of the state in which the property is situated.

Is it possible to guarantee safety for machines and plants? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, safety can be guaranteed for machines and plants. Collateral rights in moveable goods take three forms: mortgages and trust.

Securities are the most commonly used form of collateralisation for machines and plants. They are unencumbered pledged items in which the debtor keeps ownership of the asset. Trust guarantees are also used to establish a lien on machines and plant, but in this case the ownership of the property must be explicitly assigned to the debtor.

The nonpossessory lien as well as the guaranteed fund must be certified by a notary and entered in the individual movable ownership register of the public commercial register as well. After all, a deposit contract can also be used, but is less widespread. Is it possible to provide collateral for claims? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process?

Yes, a collateral can be provided over claims. Two types of interests in moveable goods exist: trust. Collateral most commonly used to secure claims is unencumbered pledge. WARRANTY TRUTS can also be used to establish a lien on claims. Since the ownership of the claims passes to the fiduciary in this case, the fiduciary must conclude an intermediary contract with a provider (typically the borrower) to satisfy the claims.

The nonpossessory lien as well as the guaranteed fund must be certified by a notary and entered in the individual movable property register of the public commercial register as well. Unless otherwise stipulated in the contract, the borrower's consent to the claims shall not be necessary to establish the right of lien.

In order to be valid vis-à-vis third persons, it must also be entered in the individual register of movable assets. Is it possible to provide collateral for financing documents? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, collateral can be provided via the use of derivative financing instruments.

Hypothecation is the most commonly used method of hedging derivative contracts. In accordance with the German Stock Corporation Act, there is a special lien for transferable assets through which the creditor must open an account with a stock exchange and place the transferable assets in it. There is no need to record the pawn and this must be done in written up.

Furthermore, it is not necessary to approve, deliver or register the transferable security in the issuer's registers. Is it possible to provide collateral in the form of liquid assets? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, the collateral can be provided via currency, although it is rare.

Lockbox algorithms (e.g. administrative trusts) are the most common way of securing your company's future liquidity. For this purpose, a dedicated Trust banking fund will be set up in which all liquid funds will be deposited into this fund and the fund will remain the ownership of the fund in favour of the creditor (trustee).

Is it possible to provide certainty about IP? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? Yes, safety can be provided through IP. A lien is the most commonly used type of collateral, which must be notarized and entered in the Individual Register of Movable Goods and the Mexico Industrial and Commercial Ownership Institute.

Trusts can also be used as protection against IP. Which are the joint trigger mechanisms for credit, surety and collateralisation? Different methods of enforcing these rules exist according to the type of collateral provided. Thus, for example, a mortgages execution process differs from a guaranty trustee process. Thus, for example, an out-of-court proceeding in relation to a warranty trust must be settled in a specific section and met by the following measures:

Unless the obligor proves that he complies with the rules or objects, the fiduciary must exclude the secured asset on the basis of previously negotiated agreements between the contracting partners. In the event that the plaintiffs do not consent to the out-of-court proceedings, the Act provides for court enforcement proceedings for the secured property.

Debtors are classified in the following order: creditor against the inheritance (e.g. work receivables for outstanding salaries for the last two years); particularly preferred debtors (e.g. sickness and funeral expenses); secured debtors (e.g. pledge and mortgage); work debtors and fiscal debtors; debtors with particular preferences (e.g. right of retention); subordinate debtors.