Abengoa Bankruptcy Risk Has Creditors Confronting 607-Unit Web

As Abengoa SA’s creditors prepare for the prospect of Spain’s largest corporate bankruptcy, they must also come to grips with the fact that they are dealing with not one company, but more than 600.

The Seville, Spain-based engineering and energy company had 607 subsidiaries in 2014, as well as 17 associates, 28 joint businesses and 244 temporary joint ventures spread out over more than 50 countries, according to its annual 20-F filing to the U.S. Securities and Exchange Commission. Abengoa, which has about 9 billion euros ($9.57 billion) in gross debt doesn’t break down its its financial figures by units.

The sprawling corporate structure proved that it could be a headache for investors in November 2014, when the company said it would change the classification of some of its bonds. The announcement triggered bond and stocks sell-offs that accelerated in July when the company cut its cash flow guidance. On Friday, Abengoa said it had made a judicial request for creditor protection.

“Having a complex, corporate structure is important" as a factor in the company’s situation, according to Clark Nicholls, a senior portfolio manager at Axa SA. For example, the structure exacerbated the company’s cash flow problems because many units relied on financing payments from banks, he said.

One reason for the company’s sprawling structure: units are regularly set-up for each new project, according to Alvaro Aristegui, an analyst at Ahorro Corporacion Financiera. Many of these units will then handle the financing for specific projects, with funds being provided by banks such as Banco Santander SA, the second biggest lender to the company, according to a document compiled by one of the creditors and seen by Bloomberg.

Abengoa’s main business is building and operating renewable energy projects,
such as wind, solar and biofuel plants, and producing drinking water, as well
as building power transmission lines in countries ranging from China to the US.
While the company, founded in 1941, started operating internationally in the
early 1960s, its main international push started over the past decade with
non-Spanish operations accounting for 87 percent of revenues in 2014 compared
to 49 percent in 2005, according to Bloomberg data.

A unit of Abengoa in Mexico missed two interest payments on credit notes yesterday for a total of 1.16 million Mexican pesos ($70,061), according to regulatory filings by financial advisory Monex Casa de Bolsa SA de CV.

Under Spanish law, the preliminary creditor protection request announced on Thursday grants Abengoa four months leeway to suspend debt payments while it negotiates with its creditors. The company has been working on a 650 million euro capital increase plan since August. Transparency around such financial operations and decisions is also a concern for investors, according to Andrew Moulder, an analyst at Creditsights Inc.

“Clearly the burden of debt, the lack of accounting transparency and the
cash outflows in a very poor 3Q15 result have seen creditor banks unwilling to continue
supporting the company," Moulder wrote in a Nov. 25 note to clients.

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