Spain Changes Bankruptcy Law to Help Companies Restructure

Spain overhauled bankruptcy rules to make it easier for troubled companies to avoid liquidation as the economy recovers from a five-year slump.

The decree will make it easier to get agreements on write-offs, maturity extensions and debt-for-equity swaps and reduces the majority needed for creditor agreements to be approved, Deputy Prime Minister Soraya Saenz de Santamaria said after the weekly cabinet meeting. Individual creditors will be able to agree to refinancing during preliminary bankruptcy proceedings.

“It’s so that the bankruptcy laws don’t place obstacles in the way of refinancing companies that are perfectly viable despite their debts,” she told reporters in Madrid today.

Almost two years after Spain bailed out its financial system and set up bad bank Sareb to absorb toxic real-estate assets, officials are tackling rules that mean about 95 percent of companies that start insolvency proceedings end up in liquidation. A record 8,716 Spanish companies sought creditor protection last year, up 20 percent from the year before, according to a PricewaterhouseCoopers LLP report.

Under the rules, companies need agreement from 60 percent of creditors to extend debt by five years or to convert debt into participative loans, a hybrid of equity and debt, an Economy Ministry official said at a briefing in Madrid today.

Pescanova, Fagor

With support from 75 percent of lenders, companies can force other creditors to accept losses, carry out debt-for-equity swaps or delay the repayment of loans by five to 10 years, according to the official.

Last year, frozen-fish producer Pescanova SA (PVA) and appliance maker Fagor Electrodomesticos Soc. Coop. were among companies that started bankruptcy proceedings. Codere SA (CDR), the Spanish gaming company that’s restructuring 1.1 billion euros ($1.5 billion) of debt, sought preliminary creditor protection in January and is negotiating with its lenders.

Bad loans as a proportion of total lending in Spain rose to a record 13.6 percent in December, compared with 13.1 percent in November, as more companies and consumers missed payments even as the economy begins to expand.

Saenz de Santamaria said the Cabinet didn’t approve the creation of a 30 billion-euro fund. The government planned to create the fund to hold equity stakes resulting from the debt-for-equity swaps that the new law is meant to encourage, Expansion newspaper reported yesterday.

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Ben Sills, James Hertling

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