Spanish government approves new refinancing rules

The new rules are designed to make it easier for struggling but viable Spanish companies to refinance their debts and avoid time-consuming bankruptcy proceedings.  

Spanish legislators approved proposals on Friday to relax the rules on debt refinancing in a bid to help struggling but viable companies, according to newswires.

It is hoped the new rules will help firms remain solvent as the country tackles its debt burden.

Companies will be able to extend maturities on bank loans, negotiate haircuts, arrange debt-for-equity swaps and reduce the majority needed for creditor agreements to be approved thanks to the new rules.

Deputy prime minister Soraya Saenz de Santamaria, speaking to reporters in Madrid after the weekly cabinet meeting, confirmed the decree had been passed, adding: “It’s so that the bankruptcy laws don’t place obstacles in the way of refinancing companies that are perfectly viable despite their debts.”

As a result of the new rules, the Bank of Spain could let lenders classify some refinanced debt as performing, in turn helping Spanish banks with their capital ratios ahead of European financial health tests, according to Reuters. The measures also aim to help the country with its unemployment rate, currently at 26 percent.

65,000 small and mid-sized companies are at risk of disappearing in the first half of the year as they fail to keep up with debt payments, according to Spanish economist association Refor. 10,000 companies and individuals filed for bankruptcy last year.

Under the previous rules companies have struggled to emerge from a bankruptcy situation. New rules would see smaller creditors prevented from holding up restructuring agreements, Reuters said. They will also include tax breaks making debt-for-equity swaps tax neutral.

Spain’s banks were forced to make provisions of €5 billion against bad property loans in 2012, causing some to take State bailouts.

Lenders in Spain have been lobbying hard for a ‘bad bank’ to house company loans. It would allow banks to exchange loans for stakes in companies, which could then be transferred to a fund.

De Santamaria said the cabinet had not approved the creation of a €30 billion fund which would house equity stakes resulting from debt-for-equity swaps, however, as had been reported by Spanish daily Expansion on Thursday.