Updates Administrative Corporate 8-2012

Additional provision 1 of Budgetary Stability and Financial Sustainability Organic Law 2/2012, of April 27, 2012 (“Organic Law 2/2012”) introduced the possibility for autonomous community governments and local corporations to apply to central government for access to extraordinary measures to support liquidity.

In the framework of this provision, Royal Decree-Law 21/2012, of July 13, 2012, on Measures for the Liquidity of the Public Authorities and in the Financial Arena (“Royal Decree-Law 21/2012”) was published in the Official State Gazette on July 14, 2012. Pursuant to this Royal Decree-Law, a mechanism is created to provide liquidity support to autonomous community governments on a temporary and voluntary basis with the aim of allowing the autonomous community governments deciding to adhere to the new mechanism to meet their debts as they become due, and to raise the necessary funds to finance the borrowings permitted by budgetary stability legislation. Any autonomous community government adhering to the mechanism must, in return, meet a series of financial and fiscal conditions which are detailed in the Royal Decree-Law 21/2012.

The instrument through which the mechanism is to operate will be the Autonomous Community Liquidity Fund, to be managed by the Official Credit Institute (the “ICO”), and the initial endowment (appropriated from the General State Budget) to the Fund will be €18 billion. Adhesion to the new mechanism will mean arranging the relevant credit facility, drawn from the Autonomous Community Liquidity Fund, with the central government, which will be responsible for managing the payment of the autonomous community government’s debt as it becomes due. The funds in the system for financing each autonomous community (excluding the Basque Country and Navarra) will be used to meet the obligations entered into with the central government when the mechanism is used.

Royal Decree-Law 21/2012 contains 16 articles, 5 additional provisions, 1 transitional provision, 1 repealing provision, 4 final provisions and a Schedule, and is structured into 4 chapters.  It entered into force on July 15, 2012.

1. GENERAL FEATURES OF THE NEW MECHANISM FOR PROVIDING LIQUIDITY SUPPORT TO AUTONOMOUS COMMUNITY GOVERNMENTS
1.1 Purpose
1.2 Timeframe
1.3 Adhesion to the mechanism

2. FINANCIAL AND FISCAL CONDITIONS INHERENT IN THE ADHESION BY AUTONOMOUS COMMUNITY GOVERNMENTS TO THE LIQUIDITY SUPPORT MECHANISM
2.1 Financial conditions
2.2 Fiscal conditions

3. AUTONOMOUS COMMUNITY LIQUIDITY FUND
3.1 Creation and timeframe
3.2 Funds for the Autonomous Community Liquidity Fund and how they are raised
3.3 Economic and financial rules governing the Fund
3.4 Management of the Autonomous Community Liquidity Fund

4. ARRANGEMENT OF CREDIT FACILITIES WITH CENTRAL GOVERNMENT THROUGH THE AUTONOMOUS COMMUNITY LIQUIDITY FUND

5. OTHER RELEVANT PROVISIONS
5.1 Applicability to the local entities of the Basque Country and Navarra autonomous community governments of the mechanism for financing payment to suppliers of local entities
5.2 State guarantees for issues of debt certificates and obligations by credit institutions
5.3 European financial assistance for the recapitalization of Spanish financial institutions