Loan Waivers Seen as Spain’s Biggest Cement Maker Buckles

Creditors of Spain’s biggest cement maker are poised to grant a temporary suspension of loan payments, signaling months of restructuring talks.

Cementos Portland Valderrivas SA, whose Madrid plant once rumbled under the weight of cement being transported to build Spain’s biggest projects, doesn’t have the cash for a 50 million-euro ($68 million) loan payment due June 30, according to two people familiar with the matter, who asked not to be identified because it’s private.

Cementos Portland, which is owned by Spanish builder Fomento de Construcciones & Contratas SA and has reported losses for three straight years, is in talks with creditors to restructure about 1 billion euros of debt. Once the payment delay is agreed, lenders that include Spain’s three biggest banks will draw up a plan for the overhaul of the company, the people said.

“The company’s biggest problem is its debt load,” said Nicolas Lopez, head of analysis at Madrid-based broker MG Valores. “It’s accumulated an amount it can’t service.”

A spokesman at FCC, which counts Bill Gates and George Soros among investors, declined to comment on the loan payment and debt restructuring at its unit.

Shuttered Airport

Cementos Portland’s fortunes declined as Spain’s real estate market crashed, dragging the economy into its worst recession in five decades. Cement consumption has dropped 80 percent since the height of the property market boom in 2007 to 11 million tons last year, the level of demand last seen in the 1960s, according to data from the Spanish Cement Association.

At the market’s height, the Pamplona-based company was involved in projects including the construction of the now shuttered Ciudad Real airport, about 150 miles south of Madrid. As the financial crisis deepened, the airport closed its runways and the cement maker’s biggest Spanish factory reduced capacity by about 75 percent, according to a plant worker, who asked not to be identified because they’re not authorized to speak about it.

The workforce at the Madrid plant has dropped significantly since the peak of Spanish construction, says security guard Cesar Ahumada, 54, who has watched the sector go from boom to bust while working at the factory since 1999. There were fewer than 10 trucks parked at the plant last week.

Truck Queues

“I’ve seen everything; production fell massively with the crisis and a lot of people lost their jobs,” said Ahumada, standing at the security checkpoint outside the 10-story factory. “This parking lot used to be packed with vehicles and now it’s quiet. Trucks used to almost queue to get in.”

Cementos Portland reported a loss of 24.3 million euros in the first quarter, following a combined 546 million euros of deficits in the three preceding financial years. The company, which was founded in 1903 and has operations in the U.S., U.K. the Netherlands and Tunisia as well as in Spain, came out of a restructuring in 2012 with 1.1 billion euros of debt and announced early retirements and job relocations affecting 250 employees, according to a company statement in July 2012. Last year it announced 545 job cuts and the closure of plants.

Parent company FCC completed its own restructuring of 4.5 billion euros of debt in April. Cementos Portland counts for 60 percent of FCC’s non-recourse debt, for which FCC isn’t directly liable, according to an April 28 earnings statement.

Alpine Insolvency

The Barcelona-based builder increased its stake in the cement maker to 78 percent from 70 percent last month by converting a 100 million euro loan to equity, according to Spain’s stock market regulator. The move was expected to reduce Cementos Portland’s debt by about 8 percent, the company said in a March statement.

FCC allowed its Austrian Alpine Holding GmbH unit to fail last year after negotiations for an out-of-court restructuring came to nothing. The Salzburg, Austria-based builder filed for the country’s biggest postwar insolvency in June with liabilities and equity of 2.56 billion euros.

“If a restructuring is unsuccessful, I wouldn’t rule out FCC doing what they did with Alpine,” Jorge Abad, a Madrid-based fixed-income investor at Renta 4 Gestora SGIIC SA, said in a telephone interview June 16.

Cementos Portland’s lenders have formed a steering committee to discuss the restructuring, according to the people familiar the matter. It comprises Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA, Spain’s biggest banks by assets, as well as Banco Sabadell SA, Credit Agricole SA and Kutxabank SA, the people said.

Apollo, Avenue

Officials at Santander, BBVA, CaixaBank and Sabadell declined to comment on the debt talks. A spokesman at Kutxabank and a spokeswoman for Credit Agricole didn’t immediately respond to e-mails and phone calls seeking comment.

In the past six months, Apollo Global Management LLC, Avenue Capital Group LLC and Blackstone Group LP’s GSO Capital Partners LP bought about 25 percent of Cementos Portland loans at a discount, the people said. The debt traded at 76 cents on the euro in the first quarter, according to trader prices.

Fran McGill, a spokesman for Apollo at Rubenstein Associates in New York, and Todd Fogarty, a spokesman for Avenue at Kekst & Co. also in New York, declined to comment on the debt purchase. A spokesman for Blackstone in London also declined to comment.

KPMG LLP produced an independent business review to aid debt talks last month, according to the people. Stakeholders aim to craft a restructuring plan by the end of July and sign an accord by the end of the year, they said.

“This is a company that has a lot of debt, is reporting losses, and is in a sector that’s not expected to recover any time soon,” said Renta 4 Gestora’s Abad. “I see quite a lot of risk in this company.”

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