9 March 2016 – Expansión
Sareb has reduced its financial burden by refinancing half of its debt in just two months. The bad bank is taking advantage of the historically low interest rates to save itself €150 million in interest payments, a key reduction at a complex time for the entity. In addition, the entity chaired by Jaime Echegoyen is finalising the repayment of debt amounting to around €2,000 million, in line with its objectives.
On 18 December 2015, Sareb launched a debt issue amounting to €10,268 million, with a one year term, and a further €6,574 million with a three year term. And two weeks ago, it closed another two operations amounting to €4,084 million and €2,537 million, also with one- and three-year terms, respectively. In total, these sums account for €22,565 million of its debt balance, which currently amounts to almost €45,000 million.
As a result, Sareb is going to see a sharp reduction in its financing costs, which, according to financial sources, will amount to almost €150 million.
In this way, the company’s financing cost will decrease from €1,100 million in 2013 to its current figure of close to €550 million.
In addition, sources close to Sareb’s Board of Directors indicate that this reduction will allow the entity to continue repaying its debt, between €2,000 million and €2,500 million to be specific. They expect that the firm chaired by Jaime Echegoyen will publish its annual accounts for 2015 at the end of this month, which will reflect some of this reduction in costs. During the first half of 2015, the significant cut in interest rates, thanks to the measures implemented by the European Central Bank (ECB), pushed financing costs down to €360 million, i.e. €194 million less than a year earlier.
The decrease in Euribor has served as a balm for Sareb in the face of the (temporary) suspension in real estate sales in 2015 – due to the migration of its assets – and the impact of the new accounting circular, which is going to force it to exchange two thirds of the subordinated debt that its shareholders hold. Before this new accounting standard, Sareb had already accumulated losses of €850 million during the first three years of its life.
Sareb was created in 2012 with debt of more than €50,000 million, which was granted to the ceding entities as payment for the transfer of their assets. These issues were placed over terms of 1, 2 and 3 years, and were linked to 3-month Euribor plus a spread.
The company launched its first bond issue at the end of 2012. It placed €16,512.6 million at 3-month Euribor plus a spread of 256.2 basis points. For the issues completed in February, that margin had decreased to less than 30 basis points above the same reference rate. In addition, Euribor is now in negative territory, even on a 12-month term. The 3-month reference rate for issues by the company amounts to -0.21% Even if this reference rate continues to fall, negative interest rates will never be applied by Sareb. (…).
The cut in the financing cost would have been greater if it wasn’t for an interest rate hedging instrument that Sareb took out for a 9-year term to cover 80% of those senior debt issues. (…). .
Original story: Expansión (by D. Badía and J. Zuloaga)
Translation: Carmel Drake