Tag: interest payments

Sareb Refinances Half Of Its Debt To Reduce Its Interest Payments

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.

A balm

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

Sareb’s Financing Costs Will Be €400m Lower In 2015

19 February 2015 – Expansión

Good news for Sareb. The company has not yet published its accounts for 2014, since it is still waiting for the Bank of Spain to define its accounting framework and whereby determine its final results. But the company, chaired by Jaime Echegoyen (pictured), has taken an important step that will help to improve its results in 2015, its third year of operation.

The bad bank has just renewed the debt that it raised to pay the rescued savings banks for the properties and developer loans that they transferred. Instead of cash, Bankia, Novagalicia (now Abanca), Catalunya Banc, Banco de Valencia, BMN, Liberbank, Banco Caja Tres and Ceiss received senior bonds backed by the State.

The bonds, whose interest rate is linked to 3-month Euribor and the spread on Spanish debt, had maturity dates of one, two and three years and are renewed automatically. The debt relating to the entities classified in the so-called Group 1 (the larger ones) was renewed in December and now (in February) it has been the turn of the Group 2 entities.

Thanks to improved market conditions, in particular, the decrease in the risk premium on Spanish treasury bonds, Sareb has significantly reduced the yield on these senior bonds to the extent that the average spread on its debt portfolio has fallen from 1.954% to 0.832%.

In this way, Sareb will reduce its financing costs by €400 million in 2015, according to the institution’s official calculations. In other words, with the renewal of this debt, the former savings banks will no longer receive this amount for the real estate assets they transferred to the bad bank, which will have a negative impact on their net interest income this year.

The decrease in the interest payments on this debt would have been even greater without the coverage that Sareb contracted over 85% of the portfolio through a swap, which establishes a fixed interest rate regardless of the evolution of Euribor. In this way, it protects its results from upwards movements in the base rate, but it also mitigates the positive effects of any downwards movements.

Repayment of €5,416 million

Sareb’s financing costs have also been reduced by the repayment of debt. The bad bank issued €50,781 million in bonds when it was created to pay the savings banks for their assets. Since then, thanks to the income generated from the sale of properties and loans, it has repaid €5,416 million of that balance.

The amount of debt repaid in 2014 exceeded the initial expectations of €3,000 million by more than €400 million. And Sareb expects that it will exceed its bond repayment forecasts this year as well, although it has not yet shared these forecasts with the market.

“Sareb is fulfilling its main objective, which is to manage and sell its portfolio of assets without generating higher costs for the taxpayer”, said the Chairman of the bad bank in the first ordinary meeting held by the Board of Directors in 2015.

His predecessor in the role, Belén Romana, used to repeat the mantra that reducing its own financing costs was one of Sareb’s priorities to pave the way towards sustainable profitability. Its financing costs amounted to €1,272 million in 2013 and decreased to €1,135 million in 2014. In all likelihood, this downwards trend will only accelerate from here on in.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake