For those investors following Spanish distressed opportunities, there is much more to the market than the traditional distressed corporate debt and NPL portfolios held by financial institutions.
First, the Spanish bad bank, Sareb, will be set up at the beginning of December 2012. Investors are being approached so at least 51% will be held privately (as share capital and subordinated debt, with a total of €1.9 billion ($2.4 billion) to be contributed). Furthermore, a first set of assets amounting to up to $44 billion (foreclosed assets whose net carrying amount exceeds €100,000; loans and credits whose net carrying amount is higher than €250,000, defined as the total per borrower, rather than transaction level; and controlling corporate holdings linked to the real estate sector) will be transferred before the end of the year by Group 1 institutions. There is a timeline to sell these assets and there may be vendor's finance available. In 2013, additional transfers are envisaged by Group 2 financial entities.
Secondly, several toll-road concessionaires have financially collapsed: cash flows are not enough to cover the debt service and operating costs due to the low traffic demand and the huge deviation costs arising from expropriations. The Spanish government set up a special regime allowing some additional compensation and anticipating payments but this proved to be insufficient. In addition, participating loans may be now available under the new Budget Act. There are also rumours that plans for nationalisation and the creation of a new Spanish public agency to hold this infrastructure are on the Ministry's table. At this point, concessionaires are going bankrupt and lenders are eager to sell their positions. All is not lost, however, due to the security package granted which includes pledges over state liability (RPA) and income derived from state appropriation, and other guarantees.
Thirdly, the Spanish government successfully passed several pieces of legislation a few months ago aimed at providing a mechanism to repay the amounts due by the Spanish local entities and autonomous regions to their suppliers of goods and services. Such mechanism, which consisted of the incorporation of a special purpose fund known as Fondo para la Financiación del Pago a Proveedores (the FFPP) was implemented and executed with great success. Only receivables due and outstanding as of December 31 2011 qualified to be repaid by the FFPP, however. Since that date, and despite the attempts of the Spanish government to alleviate the liquidity tensions at the autonomous regions level through a new special fund (Fondo para la Liquidez Autonómica) new debts held by public entities with respect to various different suppliers are growing again. This is creating good new opportunities for investors to acquire such receivables, particularly from pharma companies and hospitals.
Keep your eyes and ears open for Spain. Prices are now matching and transactions are being executed. And you can be sure there is much more to come.
Iñigo de Luisa and Agustín Cerdá
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