Outlook on the Homologation of Restructurings
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2024年7月01日
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This article was published in El Confidencial,1 Spanish newspaper, in February 13, 2024.
Spain’s new Bankruptcy law2 has been in force for over 15 months, since September 2022 — sufficient time to conduct a thoughtful analysis of its usefulness. The preamble to the Legislative Royal Decree 1/2020, which approved the consolidated text of the Bankruptcy Law, acknowledged problems with the pre-existing regulations: “The deep and lasting crisis that the Spanish economy went through [the Great Recession of 2008-2012] highlighted the flaws and inadequacies of the regulations, and the corresponding increase in bankruptcy proceedings soon overwhelmed the commercial courts.” The decree also admitted that the flaws in pre-existing law caused the “flight from the Bankruptcy Law”: instead of filing for bankruptcy in Spain, businesses used forums abroad so they could “benefit from solutions lacking in Spanish legislation.”
This candid analysis was an accurate description of the situation, which explains why there were high expectations for the revised law’s new text. The changes introduced in the new law, including the judicial homologation of the restructuring, have made it more agile and better suited to helping companies that are in difficulty but have a chance at recovering. Until now, entering bankruptcy and reaching liquidation were almost synonymous. In the numerous cases in which we’ve intervened in recent months, some of the businesses involved would not have survived to this point without this new law.
Our experience and leadership in resolving restructurings last year in major troubled companies, such as Naviera Armas, Celsa, and Telepizza, have led us to look favourably upon the new approved text. On the one hand, it enables companies to safeguard their value during negotiations between owners and creditors, whilst on the other hand, it prioritises recovery for the true economic owners of that value. The current framework also imposes more rational mechanisms for reaching a real valuation of the company that considers the opinions of both the capital owners and the creditors, sometimes aided by judicial intervention — as has been the case with Celsa.
The new text, however, may be less useful for resolving problems in small companies than in large ones, and this criticism has been made in various legal forums. Under the law, it’s easier for large companies with high debt ratios to find a solution, especially if their creditors can obtain financing. This circumstance favours prolonged but orderly processes, which sometimes involve the temporary replacement of managers with interim managers and specialised advisors, thus avoiding the uncertainty and lack of leadership that can occur during bankruptcy proceedings.
Another positive result of the new law is transparency throughout the restructuring process. Companies must openly share with involved parties, real financial data before reaching agreements with creditors, especially in a process monitored by a court.
Finally, the law’s introduction of independent experts and external advisors has professionalised these processes while also improving their structure. This aspect of the new law addresses one of the most important issues: the need to fairly assess a company in distress (including the level of its goodwill) and to embrace more realistic economic prospects about its future.
Regarding the role of the State Advocate, it should be noted that this office has been less influential than initially expected. Moreover, the impact of the Official Credit Institute (ICO) — which played a very important part in addressing the Covid-19 crisis, guaranteeing up to 80% of bank loans to companies — has been positive despite many doubts about whether it might obstruct the resolution of bankruptcy proceedings. After some necessary technical adjustments, Spanish banks have been able to resolve their non-guaranteed loans without facing a conflict of interest with the ICO, an achievement that has been recognized by the financial community.
Considering all these factors, for 2024 we anticipate an environment marked by continued high — but progressively decreasing — interest rates and inflation. Although these costs may hit companies less harshly than was predicted a few months ago and economic growth could continue, albeit at a more moderate pace than in 2023, geostrategic uncertainty will be significant. The volatility of oil prices is high, and freight rates are skyrocketing due to conflicts in the Middle East; after the respite of recent months, the warlike situation there could affect energy prices despite lower business costs, and that price volatility complicates valuations and restructuring processes.
This year, medium-size companies may take centre stage in the restructuring of troubled companies now that some of the larger ones have addressed many of their issues in 2023. After so much activity last year by both financial creditors that hold bonds and by managers of large debt funds, the focus this year may well be on more traditional banks and shareholders, who face longer internal processes in these types of restructurings.
To conclude, another quote from the preamble of Legislative Royal Decree 1/2020 is worth mentioning: “The history of the Bankruptcy Law is the history of its reforms. It is difficult to find a law that, in such a short time, has undergone so many and such profound modifications.” This time, following the Anglo-Saxon example as an inspiration, the law may have hit the right note.
出版
2024年7月01日
主な連絡先
Senior Managing Director, Spain Corporate Finance & Restructuring