Spain's Banca Civica fails stress test, sets debt

Banca Civica, one of five Spanish banks to fail Europe-wide stress tests, said it would place 450 million euros ($579 million) in convertible bonds, becoming the first savings bank to use a new law to access private capital.

Tests published on Friday revealed a 406 million euro shortfall for Banca Civica, born of a merger of three smaller savings banks, under the most extreme test scenario.

JC Flowers of the U.S., a buyout fund specializing in distressed banks, has already agreed to subscribe for the full amount of its bond issue, the caja said in a statement before the publication of the Europe-wide stress tests.

Earlier this month the government decreed new rules allowing unlisted savings banks, or cajas, to issue a form of share and making it easier for them to issue debt, allowing cash-strapped entities to access private capital.

The bond carries an initial interest rate of 7.5 percent. Banca Civica said that was 25 basis points cheaper than accessing funds from the government's bank restructuring fund, or FROB.

The FROB was created to help capitalize cajas, many of which have struggled in the wake of a property boom and bust.

The savings banks account for around half the Spanish banking system and have on their books two-thirds of the more than 300 billion euros owed to banks by property developers.

The conversion of the bonds is subject to Banca Civica's shares listing on an official market, and Flowers must convert the shares within two years of Banca Civica's listing.