UPDATE 2-Spain's FCC completes 4.5 bln-euro debt refinancing

Tue Apr 1, 2014 11:50am EDT

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(Adds shares, fund manager comment, debt ratio)

By Sonya Dowsett

MADRID, April 1 (Reuters) - Spanish construction and municipal services group FCC has refinanced 4.5 billion euros ($6.2 billion) of bank debt, it said on Tuesday, a key element of the loss-making company's recovery plan which has already included laying off staff, selling assets and writing down bad investments.

Like other Spanish builders FCC amassed billions of euros of debt during the country's construction boom only to be hit by the property crash and financial crisis.

Spanish public works spending has plummeted due to strict austerity programmes put in place by the government, struggling to hit Europe-imposed budget targets.

However, the Spanish economy emerged from recession in the third quarter and the government expects economic output to grow 1 percent this year. Spain accounts for more than half of FCC's revenue.

FCC had just under 6 billion euros of debt at the end of 2013, down 1.1 billion euros from 12 months earlier. Meanwhile, operating cash flow at the company fell by more than a third in 2013 to 765 million euros.

The refinancing of the bank loans, which had fallen due at the end of 2013, got the support of banks representing 99.98 percent of the debt, the company said on Tuesday.

Under the deal FCC gets a new 3.162 billion-euro loan with the interest rate geared to Euribor plus 3 to 4 percentage points and a higher-yielding second loan for 1.35 billion euros. This Tranche B carries a payment in kind component which capitalises accrued interest and a right to convert the outstanding balance at maturity into new shares. This tranche has an interest rate pegged to Euribor plus 11 to 16 percentage points.

FCC said the overall agreement matures in four years with the possibility of an extension to six years in the event of an equity conversion on the second tranche.

TURNING POINT

But a senior Madrid-based banker said banks would prefer not to convert debt into equity if that could be avoided.

"If you can find a way to avoid a debt to equity conversion and extend debt maturities, banks don't have to provision for all that exposure," he said.

Shares in FCC, that had risen as much as 3.2 percent on Monday ahead of the well-flagged deal, were down 1.5 percent at 16.28 euros by 1528 GMT. The shares have outperformed Spain's blue-chip index by 87 percent over the past 12 months. FCC had said on Friday it was nearing a deal.

The company remains highly indebted with a net debt to core earnings ratio of 9.5, according to Thomson Reuters data, compared to an average ratio of 5.8 for rival firms like ACS and Sacyr.

But Alejandro Varela, a Madrid-based fund manager at Renta 4 who holds a small amount of FCC stock as a play on a Spanish economic recovery, welcomed the long-awaited restructuring as a positive step.

"I'm aware that the company is still going through difficult times, but I think it's one of a group of companies that are on the point of a turnaround," said Varela, who has around 400 million euros under management.

($1 = 0.7256 Euros) (Editing by Erica Billingham and Greg Mahlich)

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