The wave of liquidity injected into Spanish companies during the pandemic continues to cause shocks in the production fabric, especially in restructuring processes. The Official Credit Institute (ICO) has partially protected more than 140,000 million euros in loans, and of this amount there are still around 33,000 million in circulation with public guarantee – 32,850 million euros, at the end of September, according to data from the Bank of Spain – which will have to be repaid, mostly in 2028.
This support from the state bank, which covers between 70% and 80% of the amount paid by the bank, has become an obstacle for the banks, funds and consultants involved. The reason is that to extend the maturities of these credits beyond 2028 or apply haircuts it is necessary to have specific authorization from the Revenue Agency (AEAT), which slows down and complicates the agreements.
Although Spain’s GDP has grown by more than 36% since its collapse in 2020, experts point to an avalanche of restructuring processes that now exceed 500, with the amount increasing. They are companies in difficulty that have so far failed to return the money. “Residual debt tends to be concentrated in the most vulnerable companies,” underline Davinia Sánchez, managing partner of Kepler-Karst, and Malena Vila, associate of this law firm specializing in restructuring. These experts add that “the economic impact of the pandemic is no longer measured by the volume of credit granted, but by the ability of the most exposed companies to repay it”.
Sergio Masip, restructuring partner at EY-Parthenon, expects an “acceleration of processes” as the repayment limit approaches, with an eye to three years. Antonio Almendros, lawyer specializing in bankruptcy law at Almendros y Asociados, adds that “we are seeing an increase in restructuring processes because the liquidity guaranteed by the ICO expires in 2028, and it is logical to bring it forward as much as possible”.
The bottleneck lies in the management of authorizations, according to the sources consulted. The procedure for extending deadlines or applying haircuts requires approval from the Revenue Agency (AEAT), but “regulatory limitations that prevent the extension of deadlines beyond 2028 continue to make it difficult to conclude agreements”, explains Masip. “The main problem we encounter is the time limitation of the increase in maturities (…), and for any decision regarding haircuts or conversion into participatory loans, the express authorization of the AEAT is required”, confirms Yago Fernández, managing Director of Renovation in Madrid by Alvarez & Marsal (A&M).
A lawyer specializing in restructuring from a Spanish law firm with an international presence points out that “the problem is that in many cases the AEAT rejects the requests”, which leads some banking institutions, to avoid legal problems and the potential loss of the guarantee, “to vote against the restructuring plans of the ICO part”. From the Kepler-Carso Law they indicate that “some specific cases of extensions of deadlines or even partial withdrawals have occurred”, but add that “practical experience shows that these are exceptional cases, there has been neither general flexibility nor homogeneous interpretation between the files”. “In practice, requests are rejected, which complicates meeting the necessary deadlines in a restructuring plan, putting the short-term sustainability of companies at risk,” confirms Mikel Ortega, direct managementr of A&M Restructuring.
Exceptional circumstances
The Revenue Agency responds that there are cases in which “the requesting body (which must be the bank that granted the credit) does not demonstrate that there is any objective reason or exceptional circumstance that justifies the expected request with respect to the credit guaranteed by a public body beyond the limits indicated, so that “the failure to apply the general rule of unavailability of public credit would violate the principles of equality and justice that must be preached with respect to all those debtors of the Public Treasury who “are in the same situation legal” situation.”
Therefore, law firms are looking for alternative solutions to be able to extend this period without AEAT approval. Masip explains that restructuring plans are being developed through types of credits which, with the support of the majority of interested creditors, allow “the part guaranteed by the ICO to be brought back without loss of guarantee”. “The only way to enforce these measures is through non-consensual restructuring plans where another set of creditors – commercial, unsecured financial ICO, senior debt or even subordinated debt – Force accept new terms that the ICO or AEAT cannot or will not accept. To do this, it is essential to comply with all the requirements required by the bankruptcy law”, confirms Víctor Pedrosa, senior director by A&M Restructuring.
A lawyer from another large law firm says that it is important that the financial institutions that participated in the granting of this type of financing can “vote differently (…) with respect to the same financing, vote differently regarding the guaranteed and non-guaranteed part of the ICO, without putting their guarantee at risk”.
“Although the public body is not questioning these plans, it would be advisable to extend the horizon beyond 2028 to facilitate solutions, accelerate restructuring processes and strengthen the long-term sustainability of the companies involved,” warns the EY-Parthenon expert. Kepler-Karst comes to a similar conclusion: “If greater agility in the administrative response is not introduced, restructuring plans with an ICO component run the risk of being reserved for the simplest cases, leaving out sustainable companies with more complex debt structures.”
