Spain Plans Debt Relief in New $13 Billion Fiscal Package

Spain is considering using part of a planned 11 billion-euro ($13 billion) fiscal package to provide debt relief to companies that have borrowed through the country’s state-backed loan program, according to officials familiar with the matter.

The proposal would allow Spanish lenders a degree of flexibility to decide which borrowers should be granted relief, the officials said. Banks would absorb some of the write off and the state would cover the rest, though it’s not clear in what proportions.

The measure is the latest example of how governments are seeking to avoid a wave of bankruptcies as businesses struggle to survive extended pandemic restrictions and confront the massive debt burdens they have built up.

The plan is a shift from a previous measure the government was considering. Madrid had been mulling setting the criteria for banks to grant writeoffs to companies that borrowed through the state-loan program, some of those officials said, asking not to be identified because the talks are confidential and no decision has yet been reached.

That proposal was resisted by banks because it would have removed much of their leeway for judging credit risk.

An Economy Ministry spokesman referred to public comments by Minister Nadia Calvino, who has said the government is working on measures to shore up the balance sheets of Spanish companies.

Spanish newspaper El Pais reported the news earlier Friday morning and said the government will announce details as soon as Tuesday.

Participative Loans

The fiscal package is also likely to include funds that the government will channel to companies whose revenue has plunged during the pandemic, the officials said. It would also have funds for recapitalizing firms using measures such as participative loans, as reported last month by Bloomberg. France launched a similar plan this week.

Socialist Prime Minister Pedro Sanchez told lawmakers late last month that his administration is preparing the 11 billion-euro package, without providing specifics.

Spanish officials have spent weeks trying to figure out the most effective way to help companies as they cope with extended restrictions and the European Union’s relatively slow rollout of vaccines.

The possibility that the government would set criteria for automatic writeoffs ran into trouble partly because economists and bank executives warned of a hit to lenders’ profitability, which would put Spanish banks at a disadvantage compared to European peers. If they forgive one portion of a corporate loan, they are required to write off the remainder and to boost provisions for the client’s outstanding debt.

“A plan to offer ‘haircuts’ makes no sense because it would have completely adverse consequences,” Banco de Sabadell SA Chairman Josep Oliu said last month.

Loan Burden

Bank executives want to be able to offer relief to companies that have tapped the state-loan program, but at their own discretion. As part of the latest plan, the government is working on new regulation and a code of conduct that will permit banks to offer “haircuts” on the loans, the officials said.

Spanish companies have borrowed more than 100 billion euros in state-backed loans since the Spanish government launched the program last year. It’s managed by Spain’s Official Credit Institute, known as ICO, a state finance agency.

Businesses take out the loans from a commercial bank and the state, via ICO, guarantees between 70% to 80% in the event of a default. The lender assumes the rest of the risk.

Spain has already spent billions of euros on furlough programs for workers, and offered moratoria on some loans, among other measures.

The country’s fiscal aid cost more than 5% of gross domestic product last year, and the government has already pledged the equivalent of more than 2% of GDP this year, Calvino said in a televised interview earlier this week.

“This enormous amount of public resource has to be effective,” she said. The new measures her ministry is working on, she said, “have to reduce companies’ indebtedness.”

©2021 Bloomberg L.P.

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