New financial support measures approved by the Spanish Government

Since the beginning of the COVID-19 pandemic, the Spanish Government has approved a number of financial support measures to address companies’ liquidity requirements, including the creation of two guarantee schemes (líneas de avales) managed through the Spanish Official Credit Institute (Instituto de Crédito Oficial – ICO) in relation to financings granted to companies and the self-employed:

• up to €100bn for working capital purposes; and
• up to €40bn for working capital and investment purposes.

Certain terms of both guarantee schemes have been amended several times to ensure support for viable companies with financial difficulties due to the pandemic.

New amendments were published on 13 May 2021, as set out below.

A. Extension of the deadline to request a public guarantee scheme

The deadline to apply for a public guarantee scheme has been extended until 1 December 2021. The previous deadline was set for 15 May 2021.

B. Code of Good Practice: extension, conversion into PPL and write offs

A Code of Good Practice has been set up in relation to the renegotiation of financings granted under a public guarantee scheme ('the Code'). The Code includes three main measures:

1. extension of the maturity date; 
2. conversion into a profit participating loan (PPL); and 
3. write offs.

The three measures are at the request of the debtor, but only the extension is compulsory for the lenders.

The costs of the financings affected by the measures can only be increased to reflect any increase in the guarantee fees applicable to the extensions.

Debtors that benefit from the measures of the Code must assume the following commitments:

• to maintain the business activity related to the aid granted until 30 June 2022;
• not to pay dividends during 2021 and 2022; and
• not to increase senior management remuneration for a period of two years from the application of any of these measures.

Additionally, credit institutions, financial credit establishments, electronic money institutions and payment institutions cannot reduce the maximum amount of working capital lines granted to debtors that benefit from one or more of the measures of the Code until at least 31 December 2022.

1. Extension of the maturity date 

At the debtor’s request, credit institutions, financial credit establishments, electronic money institutions and payment institutions are obliged to extend the maturity date of the financings granted under a guarantee schemes by up to two additional years if the financing has been previously extended, or by up to five additional years if the financing has never been extended, with the corresponding guarantee remaining in place.

Following the extension, the maturity of those financings cannot exceed 10 years from their original date for financings up to €1.8m, and eight years from the original date for financings as from €1.8m. 

The requirements to benefit from this measure are as follows;

• the debtor is in compliance with the following requirements established in the fourth Additional Provision of Royal Decree-law 5/2021, of 12 March (RDL 5/2021):
  • not having lost the possibility of obtaining public subsidies or public aids and not having been convicted of a crime of breach of official duty (prevaricación), bribery (cohecho), embezzlement of public funds, influence peddling, frauds and extortions or urban planning offences pursuant to a final judgment;
  • not having been obliged to terminate a public agreement pursuant to being declared guilty;
  • being up to date with the payment obligations for the repayment of subsidies or public aids, taxes and social security contributions;
  • not having applied for voluntary insolvency, not having been declared insolvent in any proceedings, not undergoing current insolvency proceedings unless a composition agreement has been reached, not being under judicial supervision nor have been disqualified according to the Spanish Insolvency Act; and
  • not being tax resident in a tax haven country/territory.
• neither the financing under the guarantee scheme nor any other financing granted to the same debtor by the same financial entity is in payment default of more than 90 days;
• the debtor is not in a state of default as at the date of the signing of the extension according to information from the Bank of Spain's Risk Information Centre (Central de Información de Riesgos – CIRBE);
• no default in relation to the financing under the guarantee scheme has been notified to the ICO by the financial entity as of the date of execution of the extension;
• the financing under the guarantee scheme was executed before 11 May 2021;
• the debtor not having been convicted of a crime against the tax authorities and social security, or of a crime where the tax authorities have been an injured party;
• the debtor’s turnover has fallen by at least 30 per cent in 2020 in respect of 2019; and
• the debtor complies with the limits set out in EU state aid regulations.

Debtors that comply with all the above-mentioned requirements except the fall in turnover may ask the financial entity to agree to the extension of the maturity date but the financial entity will not be legally obliged to do so.

Additionally, grace period extensions can also be agreed with the financial entity.

The deadline to apply for the measure is 15 October 2021. Following the debtor’s request, the financial entity has a period of 45 days to check that the abovementioned requirements have been met.

2. Conversion into PPLs

The parties can agree the conversion of the financing granted under a public guarantee scheme into a PPL with the corresponding public guarantee remaining in place.

The conversion into PPL must be agreed within a framework of a debt restructuring process where financial entities make their best efforts to include all the debtor’s credit exposure generated between 17 March 2020 and 13 March 2021 regardless of whether granted under a public guarantee scheme or not.

This measure is only available for debtors that have received less than €1.8 million of public aids calculated according to the European Union Temporary Framework for state aid measures.

Unsecured dissenting lenders under financing granted under a public guarantee scheme will be bound by the conversion if creditors representing more than 50 per cent of the total amount of capital outstanding of the public guaranteed financing agree to it. It is not possible to bind secured dissenting lenders.

To apply for this measure the debtor must comply with all the aforementioned requirements to request an extension of the maturity date, and additionally the debtor’s 2020 profit and loss account after tax must be negative.

The deadline to apply for the measure is 15 October 2021. Following the debtor’s request, the financial entity has a period of 45 days to check that all the requirements have been met.

3. Write offs

The Spanish Government has set up a new line amounting to €3bn to make direct transfers to reduce the principal of financings under a public guarantee scheme in the context of the restructuring of companies’ financial indebtedness.

The application of this measure is only possible if a debt restructuring agreement has been reached including all the debtor’s credits generated between 17 March 2020 and 13 March 2021 regardless of whether granted under a public guarantee scheme or not.

This measure is only available for debtors that have received less than €1.8 million of public aids calculated according to the European Union Temporary Framework for state aid measures.

The restructuring agreement will establish the amount of debt under a public guarantee scheme that is going to be reduced. The financial entity must bear a reduction in the outstanding amount of principal equivalent at least to the percentage which the part of the financing not covered by the public guarantee forms of the amount of reduction in outstanding principal.

The limitations on the applicable reductions are as follows:

• up to 50 per cent of the outstanding principal of the financing when debtor’s turnover in 2020 has fallen by less than 70 per cent; or
• up to 75 per cent of the outstanding principal of the financing when the debtor’s turnover in 2020 has fallen by more than 70 per cent.

Unsecured dissenting lenders will be bound by the reduction if creditors representing more than 66 per cent of the total amount of capital outstanding of the public guaranteed financing agree with the application of this measure. It is not possible to bind secured dissenting lenders.

The following requirements must be met to request this measure:

• the debtor has to comply with the requirements established in the fourth Additional Provision of RDL 5/2021 (see section 1 above);
• the debtor’s turnover has fallen by at least 30 per cent in 2020;
• the debtor’s 2020 profit and loss account after tax must be negative; and
• the debtor has not been convicted of a crime against the tax authorities and social security or of a crime where the tax authorities have been an injured party.

The deadline for the execution of these agreements and for the communication of the transfer to ICO, CESCE or CERSA is 1 December 2022.