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Spain refinances legacy tariff deficit receivables

Source: Reuters - Tue 11th Feb 2014
Spain refinances legacy tariff deficit receivables

Spain's Electricity Deficit Amortisation Fund issued more government-guaranteed debt on Tuesday, amid fears that the country is continuing to struggle to contain deficits accrued by utility companies because of state-regulated tariffs.

Fondo de Amortizacion del Deficit Electrico (FADE) sold a 1.5 Bln 3-year bond, refinancing debt that matured at the end of last year.

The government - which had to grant FADE an additional 4 Bln of guarantees last year after anticipated deficits overran - is working on measures to reform the energy sector, in the hope that this will prevent any further tariff deficit-generation this year.

"The government believes the tariff deficit in 2014 should be zero if all the measures in the planned energy reform are implemented accordingly," said Javier Serna, credit research at BBVA.

FADE's previous debt sale in October last year allowed it to complete its designated funding programme. A month later, the Spanish government confirmed that all the tariff deficit receivables had been sold to the fund and therefore new debt issues would only be used to refinance series of bonds issued earlier.

The Spanish industry ministry subsequently proposed that Spanish gas companies would have to foot the bill for an unforeseen 812 Mln of additional tariff deficit that emerged in December.

FADE issued the new benchmark bond, maturing in September 2017, at a spread of 18bp over the interpolated Spanish government bond curve, inside initial price thoughts of 20bp area, via lead managers BBVA, CA CIB, CaixaBank and Deutsche Bank. The bond priced at a reoffer yield of 1.946% and carries a coupon of 1.75%.

FADE has now issued 26.7 Bln in total since its inception, and its current total outstanding debt amount is 24.6 Bln.

The fund also has a 2.5 Bln bond that falls due in March, giving it further refinancing needs this year that are likely to prompt further new debt issues.

FADE's prospectus, updated in November 2013, states its bond issue facility can have a maximum outstanding balance of 26 Bln, a level which was raised from 22 Bln in July last year.

One analyst told IFR, however, that the Spanish government had been deliberately vague about the maximum amount of debt FADE is able to accrue, in order to give it future leeway on deficit overruns.

The analyst pointed to a report from ratings agency Fitch in 2011, which stated that FADE then had a maximum programme of 5 Bln, adding that its total limit was now therefore 29 Bln, given the additional guarantees awarded last year.

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