Lone Star Will List Neinor On Stock Market In 2017

27 October 2016 – Cinco Días

The reactivation of the real estate sector in Spain has a future stock market star in the making: Neinor Homes, the former property development arm of Kutxabank, which the US private equity fund Lone Star acquired in May last year. The goal is to list the company on the stock market in 2017 and it has been assigned a preliminary valuation of around €2,000 million.

Neinor Homes belonged to Kutxabank until May 2015, although the sale agreement with Lone Star was signed in December 2014. The US private equity fund acquired the company that groups together properties from the former Basque savings banks, created in December 2012 as a bad bank, under the terms of the royal decree governing the clean up and sale of real estate assets in the financial sector.

The company was sold to the US private equity firm for €930 million, but Lone Star’s goal was not to liquidate the property developments and land that the entity’s property developer owned and pocket the corresponding gains. Instead, Juan Velayos (pictured above), CEO of Neinor Homes, announced as soon as he joined the company – previously he worked for Renta Corporación, but left in 2011 to join PwC – that the mission was to invest in land and construct developments.

Financial sources indicate that the company is already holding negotiations to engage investment banks to assist with its debut on the stock market, expected in 2017. Preliminary appraisal values, pending the publication of the company’s accounts for 2016 and the evolution of the real estate market, amount to around €2,000 million. That figure represents a valuation that is more than 100% higher than the price at which Lone Star purchased the company.

“From day one, the company was designed to list on the stock market. It is the natural step”, say sources at the company. “We are working with investment banks to evaluate the option of debuting on the stock market in 2017, but the final decision has not been taken yet. We will do it when we think that it is the optimal time in the market”, add the same sources.

It will be the first debut by a bread-and-butter property developer on the Spanish stock market in recent times, given that the only debuts in the sector since the crisis have involved Socimis (Lar, Hispania, Axiare and Merlin, which list on the main exchange); and 25 Socimis, which have debuted on the Alternative Investment Market (MAB). Neinor is a rarity, because it has moved away from the traditional real estate ownership model focused on rental income and the office market. At Neinor, revenues are driven by residential property developments.

The last traditional real estate company to debut on the stock market was Realia on 6 June 2007. The share price of that firm, hwich is controlled by Carlos Slim, has plummeted by 86% since that placement.

Velayos designed a €1,000 million investment plan for Neinor’s land. In 2015, the firm recorded sales of €340 million and EBITDA of €25 million. Nevertheless, the latest accounts filed with the commercial registry show a clear split between the two periods –the firm recorded losses of €70.9 million between January and June 2015 and losses of €11.2 million between July and December.

The company has signed an agreement with Kutxabank to administer and manage its assets for an initial period of seven years, extendable on an annual basis, which guarantees it recurrent annual income. The accounts filed with the commercial registry show that the firm recorded revenues of €14.4 million in H2 2015 by virtue of that contract. (…).

Original story: Cinco Días (by P.M. Simón, L. Salces and A. Simón)

Translation: Carmel Drake

Amendment To Insolvency Law Creates “Bonkers Rule”

24 April 2015 – Expansión

The latest amendment to the Spanish Insolvency Act (Royal Decree-Law 11/2014, dated 5 September) has totally changed the rules of the game for investors in distressed debt.

Although it has gone relatively unnoticed amongst other novelties that have grabbed the attention of scholars (such the new cram-down majorities or the special provisions in the transmission of business units), the new rule to calculate the value of securities over the assets of insolvent companies is of great importance for the debt business.

Pursuant to this new rule, securities (basically mortgages and pledges) will no longer cover the initially agreed amounts in insolvency proceedings in those cases in which the receiver’s report had not been issued when the reform entered into force. The “privileged credit” is now capped at the (current) fair value of the collaterals, reduced by 10% to cover foreclosure expenses, minus the amount of any higher-ranking debt.

The new rule, without clear precedents in the main jurisdictions of our legal environment, has been received in some cases with suspicion and in others with shock by top foreign firms with ambitious investment projects in distressed debt. Especially by private equity funds and investment banks having set their sights on portfolios of secured debt owned by financial entities that need to “clean up” their balance sheets and reduce their exposure to the real estate sector (eg. Sareb); transactions that generally have a strong insolvency component. It is also a disincentive for the players of the incipient “direct lending” industry, the most genuine expression of the “shadow banking” phenomenon. These players are thus pushed to request additional guarantees or higher interest rates for refinancing (in a sector with a high cost of capital per se). With financial models ready and binding offers filed, such last-minute surprises are not welcome by potential new lenders. Certain City executives have baptized the amendment as the “bonkers rule” (“regla de locos”), and expressed their wishes for the Government to stop moving the goalposts during the game. As Ignacio Tirado ironized in Expansión (“Trotski y la reforma concursal”, 13 November 2014), it looks like there is a Trotskyist hiding among the Government’s ranks, because of the “permanent revolution” theory being applied to the Insolvency Act.

Leaving the pure economics and irony aside, it is shocking from a legal standpoint that a cornerstone of real estate law such as mortgage liability (with Registry publicity versus third parties) loses all effectiveness upon the filing for insolvency. We are aware that Insolvency Law is a law of exception, which requires a balancing of interests, but we do not believe that choking half a dozen basic tenets of mortgage law for the sake of the utopian “par conditio creditorum” principle (“all creditors should be treated equal”) contributes to enhance payment to creditors, or the continuity of the debtors’ business. On the contrary, it impairs the legitimate expectations of creditors to protect their claims, it contravenes the basic rules of legal certainty (Article 9.3 of the Spanish Constitution) and creates instability by giving rise to interpretative and transitory right issues.

The constant amendments to the Insolvency Law (two on average per year from its entry into force on 1 September 2004), including material changes such as the one we have analyzed, give an image of a fluctuating legal system, always a step behind economic reality, driven by the unchanged and stubborn percentage of companies that end in liquidation. No one has thought that the key could be to facilitate their recapitalization; not to put spokes in the wheels of investors.

Royal Decree-Law 11/2014, together with the so-called “second opportunity law”; RDL 1/2015, are being processed as new draft bills (“proyectos de ley”), so they are subject to new amendments. Maybe it would be a good idea to listen to the market and that legal certainty prevails over a questionable “insolvency justice”. Especially when two core objectives for economic recovery are at stake: attracting foreign capital and cleaning up banks’ balance sheets.

Original story: Expansión (by Antonio García García)

Translation: Dentons