COVID-19: How the new €10,000 million fund for restructuring solvent strategic companies works

The new solvency support fund for strategic companies (FASE, after its initials in Spanish) will operate separately from the European liquidity instrument because, unlike this instrument, the Spanish fund is designed to provide a response to financial distress scenarios at companies where bank lending and other liquidity measures have proved insufficient to ensure the survival of companies severely hit by the COVID-19 pandemic.

The new fund’s characteristics are described below:

• Nature: the insolvency support fund for strategic companies (FASE) is part of the central government public sector as a fund without separate legal personality and has been set up as a temporary measure, because it may be removed in an order by the finance ministry. The fund is attached to the central government through this ministry.
• Management: is the responsibility of Sociedad Estatal de Participaciones Industriales (SEPI) through a managing board whose members and procedures will be determined in a council of ministers’ decision.
• Amount: an initial allocation of up to €10,000 million.
• Operations: debt-for-equity swap mechanisms through the contribution of funds, taking of financial instruments, provision of participating loans, subscription to subordinated debt, hybrid instruments, and taking of any type of ownership interest in eligible companies, by acquiring their shares.
• Use: the fund's mechanisms are accessible to any solvent non-financial companies considered strategic for the Spanish production and economic system, nationally and regionally, where they have an important role for public health or safety, infrastructure, or communications, or due to their contribution to the correct operation of the markets.
• Limits: the limit on the fund’s operations will be the European legislation on state aid. Namely, they have to observe the revised Temporary Framework for this type of aid, approved by the European Commission on May 8, 2020, which sets out the conditions for the aid to be compatible with the rules on the internal market.
• Access: an application has to be filed by eligible companies confirming that they meet the requirements for access to this mechanism.
• Requirements: the requirements needing to be met to have access to the fund’s mechanisms and the terms and conditions applicable to them, together with the rules on how the fund operates, on the mobilization of funds and on settlement will be determined in a council of ministers’ decision, without requiring subsequent implementing legislation.
• Grant: the managing board will decide on applications filed by companies, and the council of ministers will be responsible for approving the proposed transactions. If the application is not answered in six months, it may be deemed denied. Where the aid is granted, the fund has to prepare a divestment plan for the central government’s interest.
• Ownership of the instruments: any shares, certificates or other instruments that the fund may acquire will not form part of the assets of central government.
• Exemptions for taking control: the taking by the fund of an ownership interest in eligible companies will be exempt from the requirement to launch a takeover bid.
• Tax and cost exemptions: an exemption has been allowed from any central, autonomous community or local government tax for transfers of assets and liabilities, corporate transactions and transactions resulting directly or indirectly from the fund’s activities, including contributions of funds or capital increases performed for debt-for-equity swaps and/or financial and asset restructuring activities of the eligible companies. It will not have to pay notaries’ tariffs or fees or those of the property or commercial registries.
• Independent advisors and experts: the fund may receive the services of financial auditors, legal advisors and other independent experts to perform its functions. All of them have to maintain the secrecy of the information they receive and cannot disclose it, unless the exceptions in the law apply or the companies make the secret information public.
• Fund’s budget for 2020: Annex I to the instrument creating the fund, for fiscal year 2020 allocates €3,000 million in the fund’s budget to expenditure on purchasing financial assets and providing loans.