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Spanish Contractors Refinance Debt To Grow

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Rendering courtesy of FCC
FCC is part of a consortium that will build a $5.7-billion, 21-mile transit project in Lima, Peru; the company will have a 30-year operating concession.
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Seeking a return to growth, one of Spain's largest construction contractors is implementing a $6.2-billion debt refinancing—the largest in the country's history.

Some of the country's other debt-heavy contractors are taking similar but smaller refinancing steps.

Spanish contracting giant FCC Constructión is optimistic the refinancing will return the company to profit and growth, particularly in chasing global work, following two years of losses.

FCC posted losses of $1.4 billion and $2.1 billion in 2012 and 2013, respectively, and laid off 1,500 employees last year, about 10% of its workforce.

The Madrid-based firm ranks at No. 14 on ENR's list of the Top 250 International Contractors, with $14.87 billion in 2012 revenue, about $8.3 billion outside of Spain.

"The refinancing deal is part of a wider strategic plan to make FCC’s business more competitive and better placed to deliver on major international contracts," says Fernando Moreno, CEO of FCC Construcción.

The plan includes divestments of $2.1 billion in non-core assets.

The debt will be refinanced in two loan units, called tranches, in the four years from the date of the deal's completion. This window could be extended up to six years, says FCC.

Each of the loans has an interest rate with a variable spread that will rise over time, from 3% in the first year to 16% in the fourth year, but the higher rates could drop if the debt amount is repaid early, the firm adds.

The negotiation of the refinancing deal involved a total of 37 banks, according to Moreno.

"All the players, including the main shareholder, have reached a consensus about the path FCC must follow to come back as soon as possible to profits," he said. "There is new commitment on the future of this company."

Spanish contractors, still facing a shortage of infrastructure work at home, have been pushing for projects all over the world.

FCC is heavily involved in urban transit projects, in particular. Currently finishing the Panama City Metro, it is also part of a consortium set to start construction on three lines for the Riyadh Metro in Saudi Arabia later this year and has been awarded a contract on a transit line in Doha, Qatar, according to Moreno.

Further, along with another Spanish contractor, ACS, FCC has been awarded a $5.7-billion transit project to build 21 miles of a new subway system in Lima, Peru; it has a 30-year concession.

Long before the refinancing, major investors already were taking an interest in FCC.

Funds associated with Microsoft Corp. founder Bill Gates took a 6% stake in the company last year, while those associated with investor George Soros bought a 3% stake.

"This refinancing deal is symbolic of the wider economic recovery under way in Spain," Moreno said. "It represents the gradual growth in confidence in the Spanish economy that is now being felt by the major corporations, including those in the construction industry."

Madrid-based contractor Ferrovial also is refinancing. Earlier this month, it signed a five-year, $1.4-billion liquidity line with 12 financial insitutions to replace existing credit lines, according to Joaquin Fernandez Nuñez, a spokesman.

In January, contractor Acciona launched senior unsecured convertible bonds in the amount of $623 million, with an increase option of $104 million.

The firm plans to use the net proceeds to extend its debt maturity profile, enhance liquidity, reduce average cost of debt and diversify funding, according to Carla Morenes Basabe, a spokeswoman.

Neither ACS nor contractor Sacyr is currently pursuing refinancing, according to company spokespersons, but observers raise concerns about continued pressure on the firms' ability to access credit.

A Financial Times report earlier this month said high interest rates and other loan terms may raise shareholder concern regarding FCC and other firms.

 

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