The deepening crisis in the Spanish property sector has claimed its first listed company. La Coruña-based Martinsa-Fadesa has filed for insolvency in a local commercial court owing €5.2bn. Through this mechanism it hopes to restructure its activities and begin to sell assets.

Martinsa-Fadesa's debt mountain stems from its 2006 €5.7bn acquisition by parent company Martinsa of listed rival Fadesa. Growing liquidity problems saw Martinsa-Fadesa negotiating with the Government's Official Credit Institute (ICO) for a €150m bridging loan. This failed, forcing Martinsa-Fadesa to seek voluntary insolvency to protect its position. Martinsa-Fadesa is being advised by Gómez-Acebo y Pombo while in-house counsel at Caja Madrid, Bancaja and Banco Popular, which hold the senior debt, have yet to decide if they need expert legal advice, say lawyers close to the matter.

The Martinsa-Fadesa filing follows the attempt by creditors to force another listed property company, Aisa, into insolvency proceedings. Unpaid creditors, led by insurance company Asefa and advised by Madrid firm Quecedo Abogados, have submitted a second petition for compulsory insolvency proceedings to be instituted. Aisa, advised by Pintó Ruiz & Del Valle, reportedly owes €143m with most of its assets in rustic land that is now difficult to value, let alone sell.

Other companies in the sector continue their fight to stay alive. Colonial has a €9.1bn “distressed” debt situation, which includes a €6.4bn syndicated loan. Lawyers say its best hope lies in selling the 84% it owns in French subsidiary SFL, or its 15% stake in FCC, the construction and services company, and finding a partner for its Riofisa shopping centre division. However with so many holdings in the same sector it may prove difficult to agree on a robust valuation. Freshfields is advising Colonial and Clifford Chance the banks behind the syndicated loan.

Meanwhile unlisted companies continue to file for insolvency. Basque country developer Urazaca presented its insolvency petition in Bilbao after failing to find financing for its €135m of debt. Galician constructor Seixo filed for insolvency in Pontevedra owing creditors €35m. Habitat, another unlisted company struggling to refinance its debt, after last year's acquisition of Ferrovial's real estate division, has turned to Dutilh for legal advice.

The situation in the property sector is however set to worsen, believe many, and insolvency and restructuring lawyers expect real estate clients to continue to experience a difficult second half of 2008. Some firms are however now seeing their banking and finance lawyers look to reassess many of the loans agreements they have worked on in the last two years to identify those that may now be in or approaching distressed debt levels. A pre-emptive call to the lending banks or the borrowers, say some senior lawyers, may give them an advantage over competitors should a debt need legal intervention.