As new legislation comes into immediate effect to help companies avoid bankruptcy, and prompts lawyers to review finance agreements currently under negotiation, the potential of loan refinancing is now firmly under the spotlight.
With the recent introduction of new legislation in Spain to help companies reschedule their debts ahead of a formal bankruptcy process, lawyers across the country are hopeful that the implications for companies, banks and creditors could be that loan refinancing is used as a key tool to aid economic growth. “The main message is that companies will now have a better chance to get to an arrangement with their creditors than they did before,” says Antonio Navarro, Finance Partner at Broseta in Madrid. He adds that the 2011 reform on Spanish Insolvency Act, while an improvement on the first reform of 2009 (which had no rules at all for pre-insolvency procedures, with every agreement governed by general contract), failed to either fully acknowledge the complexity from all sides of the process, or provide strong incentives for the parties to get a refinancing agreement in place before getting to the point of a formal bankruptcy.
The new rules are designed to make loan refinancing easier, by making it harder for small creditors to veto deals, and creating a mechanism for creditors to be able to write off part of a borrower’s debt, as well as providing incentives for banks regarding the provisions they would normally make concerning bad debt. “In ensuring that each stakeholder will get something positive out of it, different solutions will be able to be arranged, such as creditors becoming shareholders,” explains Navarro. “And while you’ll have to look around and establish a negotiating strategy that may have to be reviewed as the negotiation process goes on, by making refinancing situations more complex, they have the potential to be more powerful as well.”