Quabit a blueprint for real estate debt restructurings in Spain

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Quabit Inmobiliaria’s plan to chop roughly EUR 820m of syndicated bank debt into a series of bilateral loans could set a precedent for Spanish property groups with looming maturities, Debtwire reports.

Companies usually prefer to negotiate loans with a single bloc of creditors. But Quabit thinks the new debt structure will make its portfolio easier to manage and give lenders clearer recovery forecasts in default scenarios. It would also facilitate single-asset restructurings.

Quabit (formerly Afirma Grupo Inmobiliario) asked its lenders to “bilateralise” roughly EUR 820m of syndicated debt and allocate specific assets as collateral. The restructuring proposal is based on a partial debt-for-asset swap (including land) and a refinancing of the group’s entire EUR 1.38bn debt, most of which was due 2015, with new five-year facilities, sources close to the process said.

“Bilateralisation of the syndicated loan will enable Quabit to manage each of its assets and financing more easily,” a company spokesperson said. It will no longer be necessary to obtain unanimous approval from the bank syndicate to seek financing for specific projects and developments.

The proposal also benefits creditors, the spokesperson added. “Each entity will have a better guarantee since it will be assigned concrete assets instead of a percentage of the whole portfolio.”

Allocating specific collateral would give lenders the security of knowing what they will get in the worst-case scenario of a liquidation, explained one of the sources close to the process. “Nobody is as optimistic this time round [about the prospects of recoveries] as they were in the first wave of refinancings among property companies in 2008 and 2009.”

Lenders are increasingly aware of the advantages of negotiating on a bilateral rather than syndicated basis, a source familiar with the situation commented. The recent case of Sacyr highlighted the problem of syndicated loans requiring unanimity, he said. “If some lenders want out, others that are willing to refinance cannot.”

Sacyr failed to refinance in full the EUR 4.9bn outstanding under a EUR 5.2bn loan it used to acquire a 20% stake in Repsol. This forced the company to sell back half its stake to the oil company last December – only a day before the debt matured – below the initial purchase price.

“We may well see more debt structure changes in 2012 of the kind Quabit proposes, not only in property companies but in other sectors too,” the same source said. “As hedge funds are starting to try and buy more into Spanish companies’ debt, banks know that refinancings needing unanimous approval will be harder to achieve, so they will be looking for ways around this.”

Coming full circle

In 2008 and 2009 many Spanish property groups unable to meet their debt maturities obtained extensions, in some cases combining them with partial debt-for-asset swaps. Banks accepted this was the most feasible way to keep the companies solvent.

But now many of the same companies are back for second-round refinancings and lenders are showing signs of strain, several advisory sources said. Real estate groups Renta Corporación and Grupo Pinar successfully concluded second refinancing coupled with debt-for-asset swaps in 2011 despite having already extended their debt in 2008. But others, such as Reyal Urbis, are struggling to garner lender support a second time round.

Alarmed at the amount of property assets accumulating on banks’ balance sheets, the Bank of Spain took action in September 2010. It increased the provisions banks have to make against real estate acquired through debt-for-asset swaps to 30% of their value within two years, up from 20% previously.

Banks were undeterred because the assets still received relatively favourable treatment compared to non-performing loans or loans in insolvency proceedings, sector advisers said. But the new Spanish economy minister Luis de Guindos’ announcement at the start of the year that the government expects to increase provisions further could prove a game changer, one of the advisers added. Banks could have to set aside an extra EUR 50bn in provisions against their property assets as part of a new wave of financial sector consolidation, the minister said in an interview with the Financial Times.

Rounding up the holdouts

Quabit hoped to reach an agreement for its proposal in July, but still needs to secure approval from lenders accounting for around 10% of syndicated debt. It has begun formalising the documents needed to close its restructuring and wants a definitive agreement with undecided lenders by the end of January.

A payment holiday ends on the syndicated loan in June 2012, when the first interest payment is due. About 10% of the EUR 820m loan principal amortises in December 2012, adding to the pressure.

Still reeling from Spain’s burst property bubble, Quabit generates negative EBITDA, though in the first three quarters of 2011 (EUR -16.7m) it demonstrated a 41% improvement on the same period in 2010 (EUR -28.4m). The group had EUR 8.3m of cash on its balance sheet as of 3Q11.

“Quabit is likely to close the restructuring agreement since its main lenders are supportive but it is not easy as unanimous approval is needed,” said one of the sources.

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