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Investment opportunities in Spain

In the past few months, the Spanish government passed several pieces of legislation aimed at providing an economically efficient mechanism to repay the amounts due by Spanish local entities and autonomous regions to their suppliers of goods and services

Agustín Cerdá
In the past few months, the Spanish government passed several pieces of legislation aimed at providing an economically efficient mechanism to repay the amounts due by Spanish local entities and autonomous regions to their suppliers of goods and services. This mechanism aims to boost the economy by providing immediate liquidity to small and medium-sized companies, which are the most common source of supplies for local and regional administrations; and alleviate the short-term financing tensions of those administrations.

In order to come up with a structure in which the necessary debt to finance the payments was not directly accounted on the public administration balance sheet, a public special purpose fund known as Fondo para la Financiación del Pago a Proveedores (FFPP) was incorporated to centralise the cash flows related to the transaction. The FFPP received a €35 billion ($44 billion) loan (the largest facility granted by a syndicate of private banks in Spanish history) granted by 26 Spanish financial entities, with Banco de Santander, Bankia, BBVA and ICO acting as mandated lead arrangers. The Spanish Treasury backed the loan by providing an ex lege direct guarantee securing the payment obligations of the FFPP with respect to the financing entities.

The funds received by means of the loan are to be applied in different stages by the FFPP to finance the payment to suppliers at both local entities and autonomous regions' level. Such payments can be made available to the suppliers either through the relevant territorial administrations (which previously received the necessary amounts through a loan from the FFPP) or directly on their accounts by means of a direct payment FFPP-supplier.

It is worth mentioning that the first disbursement of the loan, which was applied exclusively to local entities, was successfully funded and applied to the relevant payments on May 30 2012, fulfilling the ambitious deadline initially set by the Spanish government.

As a result of this structure, attractive investment opportunities are emerging for funds interested in acquiring portfolios of receivables from suppliers who qualify to receive payments from the FFPP. In particular, there has been a high level of interest in acquiring such portfolios within the pharmaceutical sector in which steep discounts have been offered to potential acquirers in recent weeks due to their liquidity needs and financing difficulties. Such transfer or assignment would be a straightforward process under Spanish law and may represent a good investment opportunity in Spain.

Agustín Cerdá

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