| MADRID, March 7
MADRID, March 7 Spain's government on Friday
approved new rules to help struggling companies cut debt and
avoid bankruptcy as the country heads into economic recovery
with weak job growth.
The overhaul is designed to ease loan refinancings by making
it harder for small creditors to veto deals. It also creates a
mechanism for creditors to write off part of a borrower's debt.
"The aim is to prevent a liquidity problem or temporary
solvency issue from forcing a company with good earnings and
growth perspectives ... from having to shut down," Deputy Prime
Minister Soraya Saenz de Santamaria said at a news conference
following a cabinet meeting.
Spain's economy is emerging from two recessions, but record
high bankruptcies are expected to continue as tens of thousands
of small companies struggle with debt left over from the crisis.
Unemployment is also stubbornly high at 26 percent of the
workforce, and the government is trying to keep employers
Spain had few tools to help companies cut their debts ahead
of a formal bankruptcy process through the courts. Once firms
enter that process, they usually can try and renegotiate or
write off loans, but many are in such bad shape by that stage
that they end up being liquidated.
The overhaul aims to get debt restructurings going before
companies are completely on the brink.
One key clause in the new rules, which have been passed as a
Royal Decree, will allow companies to cut debts if 75 percent of
creditors agree to take losses, or what is known as a "haircut".
Dissenting creditors would also be forced into such a deal.
As part of the restructuring options, creditors can also
agree to convert debt into a company's equity if 75 percent of
the lenders agree.
In order to make the rules more attractive for banks, which
would face losses from these types of agreements, the government
has also asked the Bank of Spain to changes the norms around the
provisions they have to make against bad debts.
That would allow them to classify some refinanced loans as
performing ones once debts have been restructured, lowering the
charges they put up against soured deals.
Spain's top banks have backed the idea of creating some form
of "bad bank" to house stakes in companies they might take over,
and which would be managed by third parties.
But the government has distanced itself from the plan. A
source from the Economy Ministry said on Friday that the new
debt rules, which encourage debt-for-equity swaps, might allow
banks to create such a vehicle, but added it was a private
"Creditors are free to do what they want with their stakes
in companies, after these rules go through," the source said.
"There are no obstacles to such a plan...but it's not something
that we will give state funding or guarantees to."
(Reporting by Sarah White and Blanca Rodriguez; Editing by
Fiona Ortiz/Jeremy Gaunt)