The Spanish Government approves the conditions for an initial tranche of loan guarantees amounting to €20 billion to support Spanish enterprises affected by the COVID-19 outbreak.
On 24 March 2020, the Spanish Council of Ministers (Consejo de Ministros) approved the conditions for an initial tranche of loan guarantees (the "Loan Guarantees") to companies, to small- and medium-sized enterprises (SMEs) and to the self-employed (autónomos) with a fund of €20 billion (the "Initial Tranche").
The terms of the Initial Tranche were published on 26 March 2020 in the Spanish Official Gazette (Boletín Oficial del Estado) by means of a resolution dated 25 March 2020 from the Secretary of State of Economy and Support to Enterprises (Resolución de 25 de marzo de 2020, de la Secretaría de Estado de Economía y Apoyo a la Empresa, por la que se publica el Acuerdo del Consejo de Ministros de 24 de marzo de 2020, por el que se aprueban las características del primer tramo de la línea de avales del ICO para empresas y autónomos, para paliar los efectos económicos del COVID-19) (the "Resolution").
The Resolution partially implements the Royal Decree-Law 8/2020 (Real Decreto-ley 8/2020, de 17 de marzo, de medidas urgentes extraordinarias para hacer frente al impacto económico y social del COVID-19) ("RDL 8/2020") approved on 17 March 2020, which contains a number of measures to reduce the impact of the COVID-19 outbreak in Spain. In particular, article 29 of RDL 8/2020 created a line of public guarantees for an amount of €100 billion in relation to financing granted by financial entities to companies and the self-employed. The purpose of this measure is to assist in maintaining employment levels, to provide all the liquidity the Spanish enterprises may need to remain operational, and to avoid having liquidity problems turn into solvency problems. The Spanish Council of Ministers would determine further specific details and conditions of the line of public guarantees, as it has done pursuant to the Resolution in relation to the Initial Tranche.
The Loan Guarantees are intended to guarantee new loans and the renewal of existing loans granted by financial institutions to companies and the self-employed to be used for financing needs related to, among others, payment of salaries, invoices, working capital needs or other liquidity needs, including those related to maturity of financial or tax obligations.
Any Spanish company (regardless of its size or sector or activity), SME (as defined in article 2 of the Commission Regulation (EU) 651/2014 of 17 June 2014) or self-employed individuals affected by the economic effects of the COVID-19 outbreak in Spain shall be entitled to apply for Loan Guarantees under the Initial Tranche, as long as the applicant was not under a late payment situation (situación de morosidad) as of 31 December 2019 and under insolvency proceedings as of 17 March 2020.
Spanish companies, SMEs and the self-employed may request Loan Guarantees for their transactions until September 2020. The Initial Tranche will be managed by the Spanish Official Credit Institute (Instituto de Crédito Oficial – ICO) in collaboration with the relevant financial institutions. Applicants should file their applications to any of the financial entities that collaborate with ICO.
Loan Guarantees shall apply retroactively for transactions closed after 17 March 2020. The term of each of the Loan Guarantees shall match the term of the relevant guaranteed loan, up to a maximum of five (5) years. The cost of the Loan Guarantees shall vary from 20 to 120 basis points and will be borne by the relevant financial entities.
The Resolution sets forth that 50 per cent. of the Initial Tranche (i.e. €10 billion out of €20 billion) will be reserved to guarantee loans granted to SMEs and the self-employed.
Loan Guarantees may guarantee both new loans and the renewals of those loans already in place. Specifically, Loan Guarantees will amount to (a) 80 per cent. of the new loans and renewals requested by SMEs and the self-employed, (b) 70 per cent. of the new loans requested by companies (other than SMEs and the self-employed), and (c) 60 per cent. of the renewals requested by companies (other than SMEs and the self-employed).
Transactions up to €50 million approved by the financial entity according to its risk policies will be guaranteed by ICO with no need for specific analysis but without prejudice to the subsequent assessment of the satisfaction of the applicable eligibility requirements. Transactions exceeding €50 million will be guaranteed once ICO has conducted an analysis on the satisfaction of the applicable eligibility requirements in addition to any analysis from the financial entity.
The Resolution does not expressly limit a maximum amount of loans guaranteed by Loan Guarantees in relation to each type of company. Notwithstanding the above, (a) up to €1.5 million in one or several loan transactions, Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid shall apply, and (b) in relation to loans above €1.5 million, the limits sets forth in the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak adopted by the EU Commission on 19 March 2020 will apply. For further information about the Temporary Framework see our client alert European Commission publishes its emergency COVID-19 State aid rules and rapidly approves ten State aid schemes.
The Resolution also sets forth that financial institutions shall decide on the granting of the corresponding financing to the client pursuant to their internal proceedings and risk policies. Financial institutions will maintain the costs of new loans and renewals guaranteed by the Loan Guarantees in line with the costs applied before the COVID-19 outbreak, taking into account the Loan Guarantee and its hedging cost. Additionally, financial institutions undertake to maintain, at least until 30 September 2020, the commitments under revolving facilities (límites de las líneas de circulante) granted to their clients and, in particular, to those clients whose loans are guaranteed by the Loan Guarantees.
The Spanish Council of Ministers may determine different conditions for subsequent tranches of loan guarantees available under the €100 billion line approved under RDL 8/2020 as the Spanish Council of Ministers may deem appropriate, considering the social and economic needs in Spain.