Foreign investors buy into Spanish restructurings

Capstone Equities Management, a distressed debt fund focused on real estate, has become the first foreign investor to complete a large corporate restructuring under new Spanish bankruptcy laws introduced last year.

The New-York based fund has gained control of Promociones Habitat, a Spanish residential homebuilder, after buying €675m of its bank debt in 2014.

Some of the world’s largest private equity groups have been snapping up distressed real estate loans in Spain following the bursting of the country’s property bubble and banking crisis five years ago.

However, until now investors have largely avoided corporate restructurings in peripheral eurozone countries, such as Italy and Spain, largely because of complex bankruptcy laws that often resulted in a fire sale of a company’s assets.

However, the Spanish government passed a Royal Decree law that radically altered the country’s bankruptcy proceedings by handing power to creditors, who can force debt-for-equity swaps with the agreement of three quarters of debt holders.

In November, Abengoa, a Spanish renewable energy company, applied to a court in Seville for preliminary creditor protection. The company is seeking to restructure gross debts of €9bn in what risks becoming Spain’s largest-ever corporate bankruptcy.

“This is the first use of new reforms in Spain to accelerate bankruptcy proceedings and restructurings,” said Joshua Zamir, chief investment officer of Capstone Equities. “New laws have dramatically improved conditions for this sort of investing in Spain, which has a long history of companies being unable to get restructurings done.”

Mr Zamir said distressed debt funds were looking at buying into the significant supply of land in Spain, much of which has a near-worthless value, with the aim of developing residential real estate.

He added that he expected ongoing reforms to restructuring and bankruptcy laws across Europe to trigger a new round of investment in distressed debt by investors previously unwilling to become embroiled in protracted and uncertain legal battles.

Capstone’s acquisition of Promociones Habitat’s debt is one of four distressed positions the fund has in Europe. It also has one in Luxembourg, two others in Spain, and one in Italy.

The Capstone Equities Master Fund has gained 14 per cent to the end of November net of fees and expenses, according to one investor.

“This is no question distressed investment has reached a new point in several large European markets,” Mr Zamir said. “In Italy the reforms are still in the early stages, ahead of the launching of its bad bank, but we think these steps will provide huge opportunities for investors”.

Source: Financial Times