Spain eyes debt restructuring overhaul for companies

MADRID Fri Feb 21, 2014 2:08pm EST

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MADRID Feb 21 (Reuters) - Spain's government is studying measures to help struggling companies restructure their debts, which could include transferring banks' exposures to such firms to a newly-created external fund, a banking source familiar with the talks said.

Spanish investment bank N+1 has produced a study, seen by Reuters, on the potential creation of a vehicle that would aid debt-for-equity swaps by allowing banks to exchange loans for stakes and transfer those stakes to an externally-managed fund.

Spain's economy ministry, which is working on new corporate debt rules, said the report was independent and there was no official discussion on that topic.

"We are working on a law to adopt measures that will allow companies with high debt levels or which are in the process of restructuring debts, but which are still viable, to continue operating," a spokesman for the economy ministry said.

N+1 could not be reached for comment.

El Mundo and ABC newspapers reported earlier on Friday that the government was looking at the N+1 report as it works on changes to financial legislation, and the banking source also said it was assessing the plan.

Debt-for-equity swaps typically involve banks or other creditors writing off loans to struggling companies in exchange for part of their capital.

Banks are not always keen, however, to end up owning companies which they then have to try to turn around, and sometimes prefer to sell the debts on to third parties such as distressed debt funds, although they often do so at a loss.

Critics say banks' reluctance to take such losses or swallow the pain from restructuring debts is not helping Spanish companies - among the most indebted in Europe - clear their loan burdens quickly enough.

Many are still struggling to pay loans even as Spain emerges from a prolonged recession, and Spanish banks' soured debts as a percentage of credit reached a fresh record high of 13.6 percent in December. (Reporting by Jesus Aguado, Writing by Sarah White; Editing by Elaine Hardcastle)

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