27 March 2015 – Expansión
Negotiations / The real estate company, which has a debt of €4,000 million, has appealed against the judge’s request to change and clarify certain points of its proposed agreement.
The negotiations to enable Reyal Urbis to emerge from bankruptcy have taken an unexpected turn. The real estate company, chaired by its largest shareholder Rafael Santamaría, has decided to appeal against the request from the judge in charge of the bankruptcy process to modify various points of its proposed agreement.
The decision by the real estate company to postpone the changes requested by the judge has come as a surprise, given the very difficult situation it finds itself in. Reyal Urbis has debt amounting to €4,435 million, whilst its assets are valued at €1,345 million. Moreover, it has an equity deficit of more than €3,000 million.
In 2014, the company recorded a loss of more than €694 million. It has not made a profit for five years, due to the depreciation of its real estate assets and declining sales.
On 6 March 2015, the judge Franciso Javier Vaquer, head of the Commercial Court No. 6 in Madrid, asked the company to remedy deficiencies in the feasibility plan that it had presented a few days earlier. The proposal by Reyal Urbis included a discount of 90% for those creditors with mortgage guarantees from bilateral loans. In the case of creditors of syndicated loans, which included entities such as Santander, Sareb and Barclays, the real estate company proposes two options: one of them involves a discount of 90% and the payment of the balance using certain assets (Reyal reserved some of its portfolio, worth €260 million, for itself).
The second alternative is a discount of between 88% and 93% and a six year wait for the payment of the remainder, with a grace period of four years. In both cases, the discount to be applied “far exceeds the legal limits”, something which is not justified in the feasibility plan presented by Reyal Urbis, according to the judge.
Moreover, the judge also considers that in its business plan the real estate company does not explain how it is going to obtain the funds to pay the remainder of the debt.
These high discount rates would not apply to the Tax Authorities, another one of Reyal Urbis’s creditors, with a liability of €400 million, which the judge asks them to justify “if the bankrupt entity is willing to grant the AEAT (State Tax Administration Agency or Agencia Estatal de Administración Tributaria) unique, special or beneficial treatment that differs from that offered to other creditors of equal ranking (…), then Reyal should explain all of the details behind the unique, specific or preferential treatment or treat AEAT in the same way as it would treat creditors of similar loans with no option to refer to a subsequent agreement”.
The “Drag effect”
In its proposal, Reyal Urbis clings onto the bankruptcy reform law, approved last year, to obtain its exit from bankruptcy, even without the support of all of its creditors. “The company interprets that Article 121.4 of the Insolvency Act allows a vote in favour of the proposal by 75% of the creditors (by grouped liabilities) of the aforementioned syndicated loan to “drag” the remaining 25%”, they say at the company. This is something the judge rejects, since the waiver of the rights to receive (funds) should be made expressly.
The appeal raised against the judge’s request has surprised the financial creditors, which had expressed their willingness to accept significant discounts in exchange for holding onto the assets that were already provisionally awarded through the drawing of lots, and which featured as collateral in the refinancing agreements signed in previous years.
The main creditors believe that these changes requested are necessary, before they will consider submitting the possibility of accepting this plan or not to their respective boards of directors. If it fails to gain the support of the majority of the debt holders, Reyal Urbis will have to follow in the steps of its counterpart Martinsa Fadesa, which is in the middle of liquidation.
Nevertheless, the creditors have not completely given up on the process and believe that the appeal may afford Reyal extra time to present a proposal by consensus.
Original story: Expansión (by R. Ruiz and S. Arancibia)
Translation: Carmel Drake