Spain's government aims to outline in the coming weeks a set of measures to bolster corporate solvency, possibly including haircuts on state-backed loans as well as direct state aid to help smaller firms weather the COVID-19 pandemic, sources said.
"We have to build a bridge to sustain the economy until the vaccination plan is completed and the arrival of the European funds," said a government source present at the discussions.
Treasury head Pablo de Ramón-Laca also told state broadcaster RTVE on Monday the state was working on transforming part of the state-backed credit, known as ICO loans, extended so far into an as yet unspecified type of solvency support.
The European Commission has allowed governments to temporarily provide direct aid and convert some debt into grants to support their economies through the coronavirus pandemic.
Another source familiar with the matter told Reuters the aim was to have a new framework of direct aid and loan haircuts readied by March to alleviate a growing corporate debt burden.
The government is considering applying haircuts on ICO loans, suggesting that banks, who already share some guarantees with the state under the scheme, would also share some of those losses, one of the sources said.
"Write-offs are not for everyone, but there are times when the best private solution between parties is renegotiation," said a financial source with direct knowledge of the discussions, acknowledging that "no one can come out unscathed" from the crisis.
The source said that banks were also trying to work out with the government some ways to compensate them in case of losses, be it in cash, government bonds or deferred taxes.
SMALL BUSINESSES SUFFER
In November, Madrid extended its 140 billion euro ICO liquidity scheme until June, but that was not enough to offset the impact of the third wave of the pandemic on heavily indebted companies that had been warning for months they would not be able to repay their debts.
Nearly one in five companies in Spain may have ended 2020 insolvent, according to a recent Bank of Spain report.
Small companies such as bars, restaurants and hotels, which have been hit hard as the tourism-dependent economy tanked, are in need of direct aid that could come in the form of compensation for fixed costs such as rent or utility bills, a source involved in the negotiations said.
Economy Minister Nadia Calvino has said only viable companies should get aid and the government was still discussing ways to identify those.
A source present at the negotiations said that a system of "leveraged aid", partly privately financed, could be one way of channelling aid to the viable companies.
Around 1.5 million small companies could benefit from the new measures that would bring total solvency aid to up to 20 billion euros, said a senior executive at a consultancy working with some Spanish regions on implementing similar measures.
"How ambitious to make the programme is being weighed," a financial source advising the government said, adding though that "you don't make an omelette without breaking the eggs, so if we fall short, the consequences could reverberate in the economy for years".