Financial Fallout Spreads.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Abengoa Bioenergy US Holding filed for Chapter 11 bankruptcy on Wednesday, listing up to $10 billion in total liabilities, including an unsecured leveraged loan of $1.45 billion and unsecured bonds of $3.85 billion. It didn’t list its secured debts. The filing was prompted by involuntary bankruptcy petitions by three US grain suppliers, which claim to be owed more than $4 million in unpaid invoices – million with an “m,” that’s how out of money this outfit is.
The suppliers had reportedly been told by the company that its Spanish parent, Abengoa SA, which controls the “central treasury,” had run out of cash, Reuters reports. And they cited concerns that “the U.S. business was transferring cash and loan proceeds to Abengoa SA.”
Even by recent standards, Spain’s teetering green-energy giant Abengoa SA has not had a good week. First, its former President, Felipe Benjumea, and former CEO, Manuel Sanchez Ortega, faced the indignity of standing trial for malfeasance over the exorbitant payoffs they awarded themselves just months before the company hit the wall. In Sánchez Ortega’s case, he is also accused of sharing insider information about Abengoa’s finances with his new employer, the world’s biggest investment fund, BlackRock [read: The Mother of All Shorts].
During testimony, Sánchez Ortega claimed that it was pure coincidence that BlackRock had placed a sizable short position against Abengoa just weeks after hiring him, one of the few people with first-hand knowledge of the true state of the company’s accounts. Benjumea told the court that the only problem Abengoa suffers from is a liquidity pinch.
That’s right: the sole reason why the Seville-based company has had to file for preliminary bankruptcy and is just one month away from going down in history as Spain’s biggest ever corporate failure is that it’s a little short on cash at the moment.
It is, one assumes, the same reason why Abengoa is begging bondholders for an extension on the repayment of €500 million ($551.5 million) of bonds maturing next month.
To plug Abengoa’s “liquidity” shortfall, all the firm needs is €1.66 billion of fresh debt over the next two years, while it sheds assets and stages a tactical retreat from some of its key global markets, including Brazil and Mexico where it has left behind a vast trail of unpaid debt, cancelled operations, and unemployed workers.
The Spanish firm’s creditors, which include the so-called G7 group of banks (Santander, HSBC, Caixabank, Bankia, Popular, Sabadell and Crédit Agricole) who are owed over €5 billion, and its senior bondholders, including international investment firms like AIG, Invesco, D.E. Shaw, Varde Partners, Centerbridge Partners and Blackrock (no, seriously), are not too enamored with the idea of pouring a further €1.6 billion of “enhanced liquidity” down Abengoa’s bottomless pit.
If they don’t do it — and do it fast — the company will not be able to pay its workers at the end of this month. That’s just three days away. And it won’t be able to pay them in March. For its immediate needs, Abengoa needs a floater of €165 million — on top of the €125 million emergency loan it borrowed in September and the additional €106 million it borrowed in December, which matures in March. On both occasions it was the banks who ponied up the cash. But this time round it’s the bondholders’ turn.
To try to calm its creditors’ fraying nerves, the company’s new CEO, José Domínguez Abascal, has spent the last few weeks working with the firm’s auditor, Deloitte, to establish, once and for all, the full extent of the gaping holes on its balance sheets — holes that his predecessor, Manuel Sánchez Ortega, now in the employ of Blackrock, allegedly played a key role in creating.
However well-intentioned Domínguez Abascal’s gesture may be, it is unlikely to instill much in the way of confidence in Abengoa’s accounting integrity, especially if the fiduciary clean-up is being led by Deloitte, the auditor that for three full years failed to spot any of the glaring irregularities on Abengoa’s balance sheets, for which it could face investigation in both Spain and the US [read: Deloitte About to Pay for Its Spanish Sins?].
Whatever happens over the next month, the financial fallout will be felt far beyond Abengoa’s walls. The company’s shareholders have already been wiped out, while bondholders in Mexico and Brazil have been left out in the cold. If bankruptcy is averted before the deadline expires at the end of March and the company’s debt is restructured, the firm’s providers and subcontractors could end up losing 50-60% of the money they’re owed.
As for the Spanish company’s lenders, bondholders and insurers, they’ve been made an offer that most would much prefer to refuse: a write-down of 70% of the debt they’re owed, now worth in excess of €9.5 billion, in return for 95% control of the restructured firm. None of this includes the financial havoc the company’s subsidiaries have created in the US and other countries.
The alternative is to let the firm go to the wall, with the attendant loss of 7,000 Spanish jobs, most of them in Andalusia where the unemployment rate is already 31%, and youth unemployment 57%. For the banks, bondholders and other creditors, it could be a long wait in a long line before they see their share of Abengoa’s assets. Either way, they’re going to take a hit.
As for Abengoa’s former President and CEO, one can only hope that justice takes its course, though in today’s reality, that would be a very unlikely outcome. By Don Quijones, Raging Bull-Shit.
And these bilked Investors, including the US government, are furious. Read…Deloitte About to Pay for its Spanish Sins?