The funds warn of a “cascade” of liquidations in companies that went to public creditors such as the Official Credit Institute (ICO) and have not yet restructured their operations. To this we must add that the reform of the Law planned to facilitate corporate restructuring has come up against a series of requirements that alternative debt companies are wary of. To save both situations, they demand the participation of advisors in public processes, more pre-agreements that avoid competition and fewer demands to carry out the process. These are the conclusions drawn from the colloquium they have offered. Manuel Roca de Togores, founding partner of Nk5, e Ignacio Novela, founding partner of Terram Capitalwithin the framework of the III Restructuring Forum organized by elEconomista.es.
For the first one, “the spirit of the Law is positive“, shortens deadlines, delimits liabilities and helps companies preserve their value at a delicate time. But its translation into practice “is more complex”, because it introduces additional risks such as the need to preserve activity and employment .
In the opinion of Roca de Togores, this mandate “is inapplicable and creates an unjustified barrier that imposes these limitations on the buyer”something that will be mostly rejected when having to assume those risks. “The practice will end up eliminating it as useless and discouraging,” he stressed. Along the same lines, Novela considered that “forcing people to stay in a productive unit discourages it from being viable in a few years.”
The proof of how the Law has not brought about a radical change is in the transaction figurewhich in the opinion of both, remains at the same levels as before its entry into force. “The feeling is that there are no more upas than before, nor has the speed of the processes increased, but that the Law is a gesture of last will, it has not become a restructuring tool,” added the Nk5 spokesperson. Along the same lines, his counterpart at Terram Capital acknowledged that “we have the same activity as before Covid.”
The potential of prepack
To overcome these difficulties, Novela advocates promoting the figure of the prepack (pre-packaged insolvency), a pre-agreement between a company and its creditors to sell assets to a third party before entering the insolvency process. However, he regrets that, “except in companies with a management very sophisticated, they do not exist in Spain, because a shareholder always sees more value in his company than others see”, something that inevitably ends in bankruptcy.
“Almost all companies end up stumbling upon floating capital. They trust the banks to support them, but end up calling us when they have serious liquidity problems. There we already see the deterioration, and the risk that you are willing to offer them is not the same,” he said.
Both executives have shown suspicious of the public settlement portal launched together with the new standard to try to achieve more transparent restructurings. For Roca de Togores, the competitive processes that are sought to be achieved with this formula will not occur because “the time and cost of the equipment necessary to study them discourages buyers by generating lost profits.”
His counterpart at Terram Capital considers that “although it is made to encourage competitiveness, in complex cases it discourages it. It is very good that there is transparency, but if a sale is advertised, specialist advisors should be sentbecause a lot of noise is generated and gives rise to disorderly and inefficient operations,” he said.
Faster operations
Both directors agreed on the need for These operations are resolved quickly: “When you try to eliminate all the layers of uncertainty and complexity that the transaction has, you make a decision and its execution has to be very fast, because the value of a productive unit deteriorates greatly over time. Especially after a certain moment, when the absence of cash can have a terrible impact on operations,” exclaimed Roca de Togores.
The participation of public creditors like him ICOSEPI or Cofides in this type of procedures was the subject of debate due to the difficulty of negotiating with them, given their absence or their enormous weight in decisions if they have a great weight in the balance sheets. “Its presence adds a factor of complexity to operations and introduces a certain conflict of interest. You are risking that they will not accept the operation,” said Novela.
Precisely, his presence would have caused the delay of many restructuring processesin the opinion of the Terram Capital spokesperson, “because although it was a necessary measure and it prevented a debacle in the companies, it did not distinguish between those that needed it and those that were already in bad shape, creating living dead that sooner or later will end up being restructured” . These companies, which in his opinion “should have failed, are going to go into liquidation without having been restructured first”, a situation that will arrive “in a cascade”, something that could lead to “a very large industrial and employment crisis“, according to Novela.
The presence of ICOs on the balance sheets, a deleveraging that has not occurred in many companies and a general private debt with a very high average life will give rise to “tens of millions of euros to negotiate”, something that will be done “with public aid “, according to the Nk5 spokesperson. “If you take a step forward, it will cost public money but you will have the same underlying problem. Getting ahead would be, for once, great news to preserve the value of the companies,” said the Terram partner.
Success stories
Roca de Togores announced one of its latest success stories: the purchase of Svenson hair group for Nk5which, in his opinion, “met the objectives we set at the beginning of the operation, but the process times were too long” due to several uncertainties such as the strike of Justice lawyers.
“We launched a non-binding offer in December, converted in January to an acquisition proposal together with the launch of bankruptcy and we were lucky that the underlying business was not affected. The end client does not know if a company is in bankruptcy or not , but if it had been an industrial client we would not have done it,” he explained.
For his part, the founding partner of Terram Capital exposed the refinancing of the debt of the largest vacation hotel in Cataloniaan operation that showed “the good and the bad of bankruptcy processes in Spain.” Novela acknowledged that his entry occurred in an “incipient” bankruptcy phase, where “he had to tell the family that they could not continue managing their hotels to stabilize the company.”
In his opinion, the mistake of these owners was to declare bankruptcy instead of sitting down to negotiate with the fund that owns their debt, which at a given moment began to foreclose on their assets. “They believed that it protected them and that they were buying time, but they did not realize that their assets depreciated instantly, because banks and suppliers are starting to get nervous.”
