UPDATE 1-Spain refinances legacy tariff deficit receivables

Tue Feb 11, 2014 10:09am EST

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By John Geddie

LONDON, Feb 11 (IFR) - Spain's Electricity Deficit Amortisation Fund issued more government-guaranteed debt on Tuesday, amid fears that the country is continuing to struggle to contain deficits accrued by utility companies because of state-regulated tariffs.

Fondo de Amortizacion del Deficit Electrico (FADE) sold a EUR1.5bn three-year bond, refinancing debt that matured at the end of last year.

The government - which had to grant FADE an additional EUR4bn of guarantees last year after anticipated deficits overran - is working on measures to reform the energy sector, in the hope that this will prevent any further tariff deficit-generation this year.

"The government believes the tariff deficit in 2014 should be zero if all the measures in the planned energy reform are implemented accordingly," said Javier Serna, credit research at BBVA.

FADE's previous debt sale in October last year allowed it to complete its designated funding programme. A month later, the Spanish government confirmed that all the tariff deficit receivables had been sold to the fund and therefore new debt issues would only be used to refinance series of bonds issued earlier.

The Spanish industry ministry subsequently proposed that Spanish gas companies would have to foot the bill for an unforeseen EUR812m of additional tariff deficit that emerged in December.

FADE issued the new benchmark bond, maturing in September 2017, at a spread of 18bp over the interpolated Spanish government bond curve, inside initial price thoughts of 20bp area, via lead managers BBVA, CA CIB, CaixaBank and Deutsche Bank. The bond priced at a reoffer yield of 1.946% and carries a coupon of 1.75%.

FADE has now issued EUR26.7bn in total since its inception, and its current total outstanding debt amount is EUR24.6bn.

The fund also has a EUR2.5bn bond that falls due in March, giving it further refinancing needs this year that are likely to prompt further new debt issues.

FADE's prospectus, updated in November 2013, states its bond issue facility can have a maximum outstanding balance of EUR26bn, a level which was raised from EUR22bn in July last year.

One analyst told IFR, however, that the Spanish government had been deliberately vague about the maximum amount of debt FADE is able to accrue, in order to give it future leeway on deficit overruns.

The analyst pointed to a report from ratings agency Fitch in 2011, which stated that FADE then had a maximum programme of EUR25bn, adding that its total limit was now therefore EUR29bn, given the additional guarantees awarded last year.

FADE did not respond to requests for comment. (Reporting by John Geddie; Editing by Philip Wright, Julian Baker)

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