“Where’s the Money Gone?” Rescue of Spain’s Biggest-Ever Corporate Bankruptcy Stumbles in Mexico

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Fleeced Mexican investors against big banks, hedge funds.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

After nine months of fraught negotiations with its senior creditors, Spain’s teetering green-energy giant Abengoa is tantalizingly close to a financial fresh start. In August, the firm announced that it expects to win the approval of at least 75% of its creditors for a restructuring plan by September 30. The banks and hedge funds that own most of its debt are already on board.

But not everyone’s convinced. The company’s B-shares have barely budged from the €0.20 level since the announcement. As WOLF STREET reported a couple of weeks ago, the US rating agency Moody’s played down the restructuring plan’s chances of success, citing three main causes for concern:

  1. The firm’s precarious liquidity situation;
  2. Its unseemly high leverage ratio (even after the restructuring is completed)
  3. The towering list of conditions and obligations to which it will be bound once the agreement is finalized.

The biggest issue was how two of Abengoa’s largest, most valuable markets — Brazil and Mexico — would react to the company’s announcement that it was seeking preliminary protection from creditors.

A Major Headache

Brazil and Mexico were the two countries that bore the brunt of the fallout from Abengoa’s financial collapse. In Brazil, 2,300 Abengoa workers – 42.5% of the workforce – were laid off in the first few weeks. The response of the Brazilian government was to threaten to embargo Abengoa’s Brazilian assets, including the seven electricity transmission lines it operates and another nine that are under construction. In Mexico, Abengoa’s subsidiary defaulted on tens of millions of dollars worth of debt, resulting in a flurry of investor lawsuits.

Both developments were a major headache for Abengoa’s biggest creditors — Spanish and international banks, global hedge funds and the Spanish government. They’re determined to see the firm rise from the ashes, thereby saving themselves the inconvenience of having to completely write off part of much of their investments in the firm. Even if a final agreement were reached to restructure the company, Abengoa could end up losing hundreds of millions of euros worth of assets in Brazil as well as having to shell out millions of euros in compensation in Mexico, both of which would decimate the company’s already shrinking value.

But the headache is apparently beginning to subside — at least in Brazil. According to the Spanish daily El Confidencial, the dispute there is within a whisker’s breath of resolution after U.S. private equity fund EIG Global Energy Partners agreed to take over Abengoa’s assets, not only in Brazil but also in Mexico.

The problem is that Abengoa’s Mexican creditors are not on board. In fact, they weren’t even consulted. As far as they’re concerned, Abengoa Mexico has failed to service its bonds that it issued in Mexico, and now they would like their money, or at least part of it, back. Hence the three lawsuits lodged against Abengoa’s Mexican subsidiary. There are also growing calls for Mexico’s government to embargo the firm’s assets — the same assets that EIG Global Energy Partners are rumored to have just bought.

“Where’s the Money Gone?”

The main reason for the confusion is that Abengoa Spain effectively operated a “centralized treasury,” says Jaime Guerra González, a lawyer for Monterrey-based investment bank Banco Base, one of the claimants against Abengoa. As such, the 3 billion pesos (€150 million) that was raised through the issuance of bonds in Mexico ended up in the head office accounts in Spain. “That helps to explain why the Mexican subsidiary had no money,” says Guerra.

The same conclusion was drawn by U.S. rating agency Moody’s following Abengoa Mexico’s default on its bonds, on December 3, 3015:

Under the underlying indentures, the missed payments constitute an event of default if not cured in a 5-day period and trigger the anticipated amortization of all debt outstanding under the program.

Considering that the missed payments refer to a modest amount of around MXN 267 million (USD 15.8 million), Abengoa Mexico’s inability to service them reflects the lack of access of the Mexican subsidiary to its surplus in the centralized treasury controlled by its parent company, Abengoa S.A. (Caa2, negative) in Spain.

Abengoa’s Mexican investors were not the only ones wondering where their money had gone. The same concern — that Abengoa was transferring cash and loan proceeds from its international subsidiaries to its bankrupt mother ship in Spain — was raised by creditors of Abengoa Bioenergy US Holding, which filed for Chapter 11 bankruptcy in February.

Most damning of all, in November 2015, just days before it filed for bankruptcy in Spain, Abengoa’s Mexican subsidiary raised $30 million in short-term debt in Mexico’s markets — money that no doubt went straight into the bottomless pit on the Spanish firm’s balance sheets [big hat-tip to WOLF STREET reader Nick Kelly for suggesting back in December last year that this was the case].

All of which would be, of course, morally dubious, not to mention illegal.

Double Standards

You can hardly blame Abengoa’s Mexican creditors for wanting their money back — or at least a small fraction of it. “In Spain they are trying to sell a whole bunch of Mexican assets without taking into consideration the precautionary measures already passed by a judge here in Mexico,” Guerra says.

In all corporate bankruptcies and restructurings there is a clear pecking order of creditors. But in this case, the pecking order appears to be based not solely on the seniority of creditors, but also their geographic origin. As Guerra asserts, “the only people who are going to be paid are Spanish creditors while Mexican creditors are hung out to dry.”

Yet no matter how much Abengoa’s Mexican creditors scream, shout and stamp their feet, it’s unlikely to make any difference to the ultimate outcome. For the fact of the matter is that Abengoa’s biggest creditors, including some of the world’s biggest banks (Santander, Citi, HSBC, Credit Agricole, Bank of America…) and hedge funds (AbramsCapital, Canyon Partners, D.E. Shaw, Ellliot Management, Oaktree…) have already signed along the dotted line. And it is their word that ultimately matters. By Don Quijones, Raging Bull-Shit.

Out-of-money, felled by debt and shady accounting, Abengoa faces reality. Read…  Did Moody’s Just Sever Energy Giant’s Last Life Line?

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  12 comments for ““Where’s the Money Gone?” Rescue of Spain’s Biggest-Ever Corporate Bankruptcy Stumbles in Mexico

  1. September 15, 2016 at 2:11 pm

    Q: How do you say Enron in Spanish?
    A: Abengoa

    • Alex
      September 15, 2016 at 11:51 pm

      That’s a good one… Lol

  2. Jungle Jim
    September 15, 2016 at 3:13 pm

    “All of which would be, of course, morally dubious, not to mention illegal.”

    Welcome to the new normal.

    • Chicken
      September 15, 2016 at 3:43 pm

      Of course insiders and family members will be reimbursed for going along with the plan to make it all look legitimate, those positively slanted press releases and glimmers of hope don’t write themselves ya know.

  3. Chicken
    September 15, 2016 at 3:35 pm

    So in other words, EIG is purchasing the assets owned by the jilted investors, at a price determined by a third party (arbitrator).

    This was probably the plan all along, “default and liquidate”?

  4. nick kelly
    September 15, 2016 at 3:48 pm

    My advice to Mexico looking for big electrical (or other) contractors who speak Spanish- USA.
    Sure there are sharks there too but man when they get caught the courts don’t fool around- the sentencing guidelines kick in.
    Big white- collar fraud you might get a few months picking up garbage here in Canada draws years down there.

    Of course I’m not at all in favor of other draconian even barbaric features of US law, like executions and pot sentences which now look so ridiculous, but if you are looking for recourse in a big commercial deal- there is a well- developed legal framework. That last 30 million they sold while preparing the bankruptcy- in the US that would probably result in a criminal charge.

    Enron, World Com, etc. I doubt if ANYONE in Spain or Italy has ever gone to jail for half the time given the big boys with these outfits.
    It looks like Spain is treating its former colonial empire as a financial empire- instead of looting with a gun, loot with a pen.

    • MC
      September 16, 2016 at 1:34 am

      In my memory, nobody in all of Europe has gone to jail for a white collar crime, no matter how egregious, in decades. Even fines, when all is said and done, are often downright ridiculous.

      Take the recent Areva (Framatome to old hands such as myself) fiasco. It has been bleeding red ink all over the place since it was formed in 2001, often to the tune of €4-5 billion/fiscal year.
      Instead of hauling off those responsible in front of a court of inquiry (Areva is a société anonyme but the French government is the majority shareholder), losses were swept under the rug until they could not be ignored anymore.
      Right now the French government has a tentative “rescue” plan which will see most of Areva’s assets simply transferred to energy titan EDF. There are exceptions, however: for example Mitsubishi of Japan will receive full ownership of the Atmea joint venture… for a fraction of what it’s worth.
      Nobody’s paying (bar the usual suspects) and it’s likely the politically connected professional managers who drove Areva into the ground will be hired by either a highly politicized multinational firm, such as Goldman-Sachs or Moody’s, or a French firm wishing to score brownie points with the Parisian bureaucracy.

      However don’t believe the tide isn’t turning. M5S of Italy is just the most vocal new political movement which has been demanding white collar crimes, especially those involving SOE’s, are adequately punished and that the professional managers responsible be blacklisted from a variety of positions, regardless if they are found guilty in court.
      But of course M5S, like other “euroskeptic” movements, is the work of Satan, pardon, Putin and as such should be kept from gaining the most minute shred of power otherwise… we are not told, but it’s hinted not to be very pleasant.

      • September 16, 2016 at 2:23 am

        As President Kennedy said (he may have borrowed it) “When peaceful, incremental and evolutionary change is made impossible, violent revolutionary change becomes inevitable.”

        During the 220 year life of the U. S. Republic, we have gone through an agricultural revolution (e. g. the cotton gin), and an industrial revolution which pitted the industrial north against the agricultural south resulting in a bloody civil war. We have gone through a second industrial revolution which established huge mass production enterprises (e. g. steel, railroads, automobiles and radio) which resulted in repeated depressions and asset bubbles, which generated huge amounts of labor unrest/riots, (e. g. https://en.wikipedia.org/wiki/Great_Railroad_Strike_of_1877 , https://en.wikipedia.org/wiki/Ludlow_Massacre , https://www.youtube.com/watch?v=exuGv3HsV-U )and a very real possibility of a fascist style government (1929-1939 depression). https://en.wikipedia.org/wiki/Business_Plot

        The question is, as we head into the robotics/automation/artificial intelligence revolution is “have the American people (and their “leadership”) have learned *ANYTHING*,” or will we see this “disruption” of the established order be allowed to degenerate into yet another socioeconomic crisis?

  5. ANON
    September 15, 2016 at 6:24 pm

    “Where’s the Money Gone?”

    There is no spoon.

    • September 16, 2016 at 2:24 am

      There never was any money, that was bank credit.

  6. Shaker
    September 15, 2016 at 11:05 pm

    Sicarios will pay Spain a visit.

  7. Bhartesh
    September 16, 2016 at 12:52 am

    Nick your absolutely

    There is no money in this world and hence these crisis will happen every time

    US Federal bank generate 1 B USD and by the time it reaches the market through all the intermediates Bank it becomes 10 B USD So technically the 9 B USD is in air since as per federal Bank each Bank keeps 10% with it and pass on 90% to the next Bank. Now you can make the math

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