UPDATE 1-Spain proposes 2.3 billion euro rescue of failed motorways

Tue Mar 25, 2014 1:15pm EDT

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(Adds banks, details, builders, background)

By Sonya Dowsett

MADRID, March 25 (Reuters) - Spain has proposed a 2.3-billion-euro ($3.2 billion) rescue of nine failed motorways, two sources with knowledge of the matter said on Tuesday, in the latest state bail-out linked to the excesses of the country's property and construction boom.

The government plans to create a state company to house the failed toll roads, which will issue a 30-year bond of around 2.3 billion euros to pay the motorways' debt while forcing a 50 percent haircut on creditor banks, the sources said.

The bond will have a coupon of at least 1 percent with a variable component linked to the traffic flow on the rescued roads, one of the sources said.

The arrangement will push up Spain's public debt, already tipped to hit nearly 100 percent of economic output next year, its highest level in more than a century, but avoids a hit on the country's deficit at a time when it is fighting to reduce a budget gap in line with Europe-agreed targets.

Government representatives of the Treasury and Public Works Ministries met with representatives of the six Spanish banks implicated - Santander, BBVA, Bankia , CaixaBank, Sabadell and Popular to put forward the proposal on Tuesday, the sources said.

Bankia and Sabadell declined to comment. Santander, BBVA, CaixaBank and Popular were not immediately able to comment.

Banks have until Monday to respond to the proposal, one of the sources said, but are likely to sign off on the arrangement as they have already largely provisioned for the billions lost through lending money for the motorways to be built.

"I don't think there's much of an alternative," said one of the sources close to the talks. "The banks want to be shot of this situation as well, it has dragged on for too long."

Builders including Ferrovial, Abertis, OHL , ACS, FCC and Acciona created joint ventures to win concessions from the government to build the toll roads during Spain's boom years. They borrowed

money from banks to do so.

The banks hold debt linked to the concessionary companies set up to build the motorways of around 3.9 billion euros, the sources said, and a further 470 million euros of debt with builders.

Also in play is the compensation cost to landowners for the land the highways were built on, which amounts to around 1.2 billion euros. This will sit with the state-owned company as debt, one of the sources said.

The government, builders and banks have been in talks for around a year trying to find a way to bail out the motorways at the minimum expense for the taxpayer.

Under Spanish legislation drawn up over 40 years ago under former dictator Francisco Franco, when a private motorway goes bankrupt the state has to repay owners for the cost of the land and the construction.

Traffic on the nine roads, most of which connect Madrid to outlying towns, has plunged during a recession. Many have free national roads running alongside them which cash-strapped Spaniards have favoured rather than pay a toll. ($1 = 0.7255 Euros) (Reporting By Sonya Dowsett; Editing by Fiona Ortiz and Louise Heavens)

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