BARCELONA, SPAIN-Spain's struggling listed group Inmobiliaria Colonial has been forced to return to the negotiating table with its bank syndicate exactly one year after closing a refinancing agreement. The issue is that cash-flow is adequate to support debt of €2 billion while liabilities total €6.3 billion.

If current talks lead to an agreement, the company's 10 syndicated bank debtors would end up with close to 90% of equity, according to media reports and PIE sources.

Since the beginning of the summer Colonial has been immersed in the refinancing process on which it is being advised by Lazard. Of its total debt, €4.2 billion is owed to the syndicated loan group. The coordinators are Royal Bank of Scotland, Calyon, Eurohypo and Goldman Sachs, while other syndicated entities are ING, Caja Madrid, BBVA, Banco de Valencia, Post Bank and La Kutxa. An agreement would mean that the two Spanish Banks, La Caixa and Banco Popular, would lose their controlling status over Colonial.

Lazard has been advising Colonial on both the refinancing negotiations and the level of debt which it can support. The conclusions are that based on the rental income it receives from its property portfolio and dividends it receives from French subsidiary Société Foncière Lyonnaise the company cannot support a debt level above €2 billion. Colonial has thus created a subsidiary, DevCo (Development Company), in which it will place some €1 billion of land assets and another €1 billion of debt, which will convert to non-recourse debt. In order to keep the banks on side, the assets and development projects of its shopping center subsidiary Riofisa will be included in DevCo as an additional debt guarantee. DevCo will be 100% controlled by Colonial.

Following the agreement Colonial would focus exclusively on managing its property portfolio which would carry debt of €2 billion. Since this will comprise a bullet loan, Colonial will not be faced with amortizations of principal for a few years to come. The last part of the plan developed with Lazard involves another €1.6 billion of debt, including bilateral credit lines, which will be canceled in exchange for equity. It is foreseeable that the four banks acting as agents for the syndicate, which subscribed to the debt issue last year, will exchange those convertible obligations for shares in advance in order to create a stable structure for shareholders.

As a consequence of the above, when summing up the shares derived from the convertible obligations and those from the exchange of debt, the parties calculate that the 10 banks which comprise the syndicate will finally hold around 90% of the capital of the company.