Spain's debt-laden companies attracting private equity

MADRID
U.S. private equity groups are set to snap up stakes in distressed Spanish companies hungry for capital in a credit-starved economy and could play a key role in whittling down a mountain of corporate debt.

Lawyers say they see the groups are increasingly negotiating with companies' creditor banks, hoping to secure a reduction in debt in exchange for taking a slice of the company's equity. “We are beginning to have more movement in this area. Prices may now be becoming interesting,” said Inigo Villoria, insolvency lawyer at Clifford Chance in Madrid.

Spanish companies built up massive debt loads during the boom years of the early 2000s when entry to the euro gave access to cheap credit, pushing non-financial business debt to one of the highest rates in the developed world.

Corporate debt, excluding banks, stood at 136 percent of gross domestic product in 2008, outstripping Britain, the United States, Japan and fellow eurozone members like France and Germany, according to a McKinsey Global Institute study.

There are early signs that investors are moving in, even if valuations may have to come off further for companies to be more interesting.
Liberty Acquisition Group reached a deal with Spanish media group Prisa in March which will lead to a $900 million cash injection into the indebted owner of El Pais newspaper, resulting in the sale of most of its shares to the U.S. group.

The cash, coupled with proceeds from the sale of minority stakes, will reduce debt at the company to around 4.5 times earnings before interest, debt and amortisation from 7.8 times in 2009.

U.S. private equity group Cambium said on March 22 it was considering injecting about 300 million euros into the world's leading olive oil bottler, Spain's SOS, although the deal would be conditional on SOS restructuring its liabilities.

One Madrid-based private equity source said prices had further to fall. Multiples of 10 times EBITDA were too demanding for debt-laden companies exposed to Spain's struggling economy, he said.

He said some of the companies were on the market for 6 to 7 times EBITDA, but that those had poor business plans that scared off private equity.