Restructuring bankers see bigger role in Spain

By Elena Moya - Analysis

LONDON (Reuters) - Restructuring bankers are a rare breed in Spain, where troubled companies tend to turn to lawyers for help, but this is beginning to change as Spanish companies come up against aggressive international creditors.

"Spanish debtors and creditors still approach distressed situations without advisers other than lawyers, who are mainly used to documenting what the principals agree, based on relationships," said Manuel Martinez-Fidalgo, senior vice president for U.S. investment bank Houlihan Lokey's special situations group in London.

"But relationships are becoming less and less important as players driven by pure economics, and not by relationships, enter the market."

As a result of a sharp downturn in the property sector, the number of firms in danger of tipping into insolvency has ballooned.

International law firm Freshfields has seen its cases double this year, according to partner Fernando Bautista, who says scarcity of insolvency expertise in the country has become an issue.

"The court process is slow, the judges' knowledge is limited and there's not a lot of accommodation to international players," he said.

The emergence of hedge funds and buyers of collateralized loan obligations (CLOs) as creditors of companies such as real estate firm Martinsa Fadesa (MFAD.MC) has added to the complexity of the process.

Original lenders have sometimes been forced to accept disadvantageous conditions in order to avoid further losses, bankers have told Reuters.

Martinsa Fadesa, which did not hire an adviser to restructure 4 billion euros ($6.18 billion) of debt, had to battle on its own against hedge funds in London.

The funds won, securing a deal under which they would be paid back within one year. Spanish savings banks, in contrast, face a delay of as many as seven years to get their money back, according to a source at one hedge fund holder of Martinsa Fadesa debt.

"As this (hedge fund) type of player comes into the scene, transactions become more complex, and debtors and creditors benefit from the experience of restructuring investment bankers," Martinez-Fidalgo said.

Colonial (COL.MC), another struggling real estate company, watched its share price tumble and its debt run into breach of covenants before finally hiring Lazard as adviser.

The company, which rejected a partial takeover offer by Investment Corporation of Dubai, has since agreed a debt-for-equity swap with its lenders that saved it from insolvency.

The restructuring of Habitat, another Spanish real estate firm, also went more smoothly after it hired Spanish advisers NMAS 1, bankers say.

Of course, bankers will always say their advice is of value, but lawyers agree that legal expertise is not enough in modern distress situations.