Spain aims to outline new solvency scheme for smaller firms within weeks -sources

Spain's government aims to outline in the coming weeks a set of measures to bolster corporate solvency, possibly including haircuts on state-backed loans as well as direct state aid to help smaller firms weather the COVID-19 pandemic, sources said. The European Commission has extended until the end of 2021 a temporary framework for state aid it adopted last March to enable governments to support their economies through the coronavirus pandemic.

Spain's government aims to outline in the coming weeks a set of measures to bolster corporate solvency, possibly including haircuts on state-backed loans as well as direct state aid to help smaller firms weather the COVID-19 pandemic, sources said.

The European Commission has extended until the end of 2021 a temporary framework for state aid it adopted last March to enable governments to support their economies through the coronavirus pandemic. The EU has also allowed the conversion of some repayable instruments into direct grants until the end of 2022.

Treasury head Pablo de Ramón-Laca also told state broadcaster RTVE on Monday the state was working on transforming part of the state-backed credit, known as ICO loans, extended so far into an as yet unspecified type of solvency support. A source familiar with the matter told Reuters the aim was to have a new framework of direct aid and loan haircuts readied by March to alleviate a growing corporate debt burden.

The government is considering applying haircuts on ICO loans, suggesting that banks, who already share some guarantees with the state under the scheme, would also share some of those losses, one of the sources said. In November, Madrid extended its 140 billion euro ICO liquidity scheme until June, but that was not enough to offset the impact of the third wave of the pandemic on heavily indebted companies that had been warning for months they would not be able to repay their debts.

Nearly one in five companies in Spain may have ended 2020 insolvent, according to a recent Bank of Spain report. Small companies such as bars, restaurants and hotels, which have been hit hard as the tourism-dependent economy tanked, are in need of direct aid that could come in the form of compensation for fixed costs such as rent or utility bills, a source involved in the negotiations said.