Spain seeks to keep its bailout of private toll roads off its books

Link to article here.

Let this be a warning to Americans, when private toll roads go belly up, they come to the taxpayer to bail them out. The devil is in the details of each contract, and in Texas, no elected official has any oversight over these public private partnerships. In fact, the details are kept secret from the public until AFTER the contract is signed.

Spain looks for way to keep motorway firms' debt off its books
By Sonya Dowsett
July 17, 2014

MADRID, July 17 (Reuters) - Creditors of a bankrupt Spanish motorway business will meet on Friday to decide whether to liquidate it, piling pressure on the government to come up with a way to avoid billions of debt from nine failed toll road companies ending up on its books.

After more than a year of negotiations between ministries, banks and construction companies, the government has yet to find a way of saving the motorway businesses without debt of over 4 billion euros ($5.4 billion) hitting its finances.

Spain wants to minimise the effect of any rescue on Europe-agreed deficit targets as it negotiates the politically difficult task of bailing out private sector operators with taxpayers' money just two years after sinking over 40 billion euros into the country's failed banks.

If the creditors of the AP-36, a toll road owned by Ferrovial and Sacyr, reject a viability plan put forward by its owners, the business will go into liquidation and under Spanish law the government will have to pay its debts of around 500 million euros.

Others could follow suit, with banks holding debt linked to failed motorway companies of around 3.9 billion euros, with a further 470 million of debt with builders.

The maximum hit for the deficit would be 3 billion euros, a government source said.

"This long, drawn-out uncertainty is terrible. The problem is not getting fixed and it won't solve itself," said a source at one of the motorway owners.

"It's a case of saving them, or letting them fall. It's that simple. Someone will have to make the decision."

Spain has pledged to reduce its public deficit to about 3 percent of GDP by 2016, implying some 35 billion euros will have to be found in the three years from end-2013 to end-2016 to meet the target. The deficit was 6.6 percent in 2013, and so a hit of 3 billion euros would make a challenging task even harder.

Ferrovial and Sacyr declined to comment. A spokeswoman for the Ministry of Public Works also declined to comment on the situation beyond saying the government was still working on a solution. Seopan, the industry body that is negotiating with the government on behalf of the builders, declined to comment too.

Traffic on the nine toll roads, most of which connect the capital Madrid to outlying towns, has failed to reach sustainable levels during a recession.

Under Spanish legislation drawn up over 40 years ago, when a private motorway goes bust, the state has to repay owners for the cost of the land and the construction. The government has sought a way of funding its obligations through public debt rather than through the deficit.

Earlier this year, it proposed creating a holding company for the assets of the nine motorways while forcing a 50 percent haircut on the banks and paying the remaining debt, of around 2.3 billion euros, with a 30-year bond with a coupon of 1 percent plus a variable component dependent on the traffic on the roads.

But banks rejected this because they said the coupon on the bond was too low, as it compares with interest payments of over 5 percent on the government bond of this maturity.

"The coupon is so low, it would be like taking another cut on top of the one we've already swallowed," said a source at one of the creditor banks.

"We're waiting for some gesture from the government, but there's been nothing," he added.

The government has also had problems convincing the European Commission that such a scheme would not constitute state aid, one source with knowledge of the matter said.

The European Commission said it was in contact with Spanish authorities regarding plans to set up a public company to deal with the highways in bankruptcy proceedings, but declined to comment further.

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