Renewable energies, a strategic focus for the coming decades in Spain

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Spain aims to reduce carbon emissions to zero by 2050, according to the new draft climate change law, which sets out an ambitious set of targets to tackle global warming over the next 30 years. The bill is expected to be passed by the Spanish Parliament during the spring of 2021.

Photovoltaic park

The law envisages that at least 70% of the country’s energy will have to come from clean energy sources, such as wind and solar, and all new coal, oil and gas extraction projects will be banned. This bill goes hand in hand with the Paris Climate Agreement, a global framework to limit global warming to well below 2ºC, and is also expected to shape the country’s economic recovery from Covid-19.

Although the plans are ambitious, Spain has already come a long way in reorganising the electricity market in favour of renewables. Consumers have been given more flexibility to switch electricity suppliers, giving green energy companies the opportunity to offer competitive tariffs while supplying electricity from 100% renewable sources.

More recently, the removal of the controversial “sun tax” in Spain has paved the way for more businesses and households to generate their own electricity using rooftop solar panels. With more than 300 days of sunshine a year, Spain is undoubtedly the perfect place to generate electricity from solar energy.

The new legislation on solar photovoltaic panels goes even further and allows those who generate solar energy to be financially compensated for the surplus energy they produce, which can be fed into the national grid.

In addition to the legislative changes, which allow businesses and consumers to generate and consume renewable energy, the government is committed to installing a minimum of 3,000 MW of wind and solar power per year for the next ten years.

Altria Corpo is particularly active in the search for financing solutions for companies that are developing renewable energy projects. There are financial providers specialised in this type of financing, to which Altria Corpo can provide access and can facilitate the management of the entire application, analysis and due diligence process for each project.

Altria Corpo strengthens its financing division with Sergi Martínez and Oriol Martí

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These incorporations consolidate the firm as a leader in Catalonia in financial consultancy for medium and large companies.

Altria Corpo has just strengthened its team in the Corporate Finance Area with two professionals, Sergi Martínez and Oriol Martí, who have in-depth knowledge of the corporate finance business in the medium and large company segment.

Sergi Martínez joins Altria Corpo after a successful 24-year career at Banco Santander, where he has held management positions in the corporate and institutional segments and led commercial teams at the bank. He is also an academic collaborator in various business schools. Sergi Martínez holds a degree in Actuarial and Financial Sciences, specialising in Business Management and Administration, from the University of Barcelona. He holds an Executive Master’s degree from EAE and has taken several specialised courses in business risk analysis.

Oriol Martí has more than fifteen years of experience in the financial sector in institutions such as Deutsche Bank and Citibank, where he has developed commercial and managerial functions within the corporate area in Barcelona, Madrid and Hamburg. He has also managed business projects in the last five years. Oriol Martí holds a degree in Economics from the Universitat Pompeu Fabra and a Master in Financial Management from ESADE.

With these additions, the Altria Corpo team now comprises eleven consultants in the Corporate Area, together with an analysis team and a team specialised in external financial management and the handling of restructuring and turnaround situations.

Sergi Martínez
Oriol Martí

Anticipating financial decisions, key facing 2021

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The extension of the grace period in ICO credits that the government is preparing will not be enough. Companies must plan and make decisions now to overcome the difficult 2021.

As of March 2021, the financing lines guaranteed by the ICO should begin to be paid back by the companies. However, for many of them, the one year grace period that these credits have seems too short in view of the evolution of the pandemic and its undoubted impact on the economy. Even with an eventual improvement in the health situation and the economy in the next half year, the reality is that the volume of debt that companies have generally incurred is too high to be able to repay these loans without liquidity tensions.

Faced with this outlook, and pressure from companies and financial institutions, the Spanish Government is taking measures and in all likelihood is going to extend the grace period, to one more year until 2022, and extend the term of the loans from five to eight years. Banks and businesses will welcome these new conditions. On the part of the financial institutions, they have assumed a risk of 25,000 million Euros which, if the number of defaults increases, could lead to significant provisions and even cause some banks to fall into losses. On the part of the companies, the situation is serious in many of them, and even a recent report by Alvarez & Marsal indicates that 14% of the companies will probably disappear due to the effects of the economic crisis and the inability to repay the debt incurred.

In spite of this relief in the repayment terms of the ICO credits, it seems clear that the companies cannot rely only on this measure, which also still needs the approval of Brussels, so it may suffer changes in the negotiation with the European authorities, among them the European Central Bank, which must approve this measure, and in such approval could set the mandatory provisions in case of increased grace periods and repayment terms, which in practice would mean that it could not be applied by the banks due to the increased cost it would entail.

European Central Bank headquarters in Frankfurt

In short, there is an urgent need to anticipate an economically very complicated and financially very tense scenario. It is crucial at this time to protect the cash flow and look for new financial instruments that can either cancel the existing debt that generates a higher monthly service for another much longer term that substantially reduces this service, or capitalize the companies to strengthen their solvency, resist the decrease in income and profits and bet on the digitalization and the implementation of new business lines.

At Altria Corpo we are actively managing our clients to find the best solution to overcome this coming year. Despite the difficulties of the credit market and especially the caution of many financial institutions, there is still a variety of possibilities, both in the area of restructuring bank debt, with the help of debt funds and other similar alternative financing instruments, and in that of other financial solutions that operate with the guarantee of the company’s assets, both real estate and productive equipment, or even the stock itself. Without forgetting the possibilities that the entry of equity offers, be it venture capital funds, or industrial partners or those with a more permanent vocation.

These are moments where, in order to achieve a solution that gives economic and financial viability to the company, a high knowledge of all the possibilities that exist in the financing market is required, as well as the capacity to prepare a complete dossier where the current financial statements are clearly explained and above all, an economic and treasury projection of the company for the next months and years can be made. The help of an expert advisor is, without a doubt, more necessary than ever at this time.

Altria Corpo is a financial consultancy founded in 2014 by Albert Gumà and based in Barcelona. Its clients are medium and large companies, to whom it offers its experience in all types of debt and equity financing, and access to more than 150 financial providers including banks, alternative financing, debt funds, public funds and other instruments. In its 7 years of existence, Altria Corpo has positioned itself as a reference in the search for financing for medium and large companies, with an accumulated advised transactions worth of more than 250 million and more than 600 operations. The scope of the companies advised covers the entire Spanish territory, with a concentration in Catalonia, which represents 80% of the total amount advised.

Corporate Finance Pills (1): What is an equity kicker?

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An Equity Kicker is a capital incentive in which the lender provides credit at a lower interest rate and, in return, obtains an equity position in the borrower’s company. An equity kicker is structured as a conditional reward, in which the lender obtains ownership of the capital to be paid back at a future date when the company achieves specific performance targets.

Early stage companies use an equity kicker to access financing for their operations. They often find it difficult to attract investors, as they are relatively new and less likely to gain their confidence.

Equity kickers are typically used in LBOs, MBOs, equity recapitalisations or venture debt operations. Such transactions are considered too risky to attract traditional forms of debt. Therefore, mezzanine and subordinated financiers use equity kickers to compensate for the higher risk they take in lending to companies that do not have sufficient collateral for loans. Kickers use convertibility into shares or warrants at a future date and can be triggered by a sale or other liquidity events.

How does an equity kicker work?

Companies use an equity kicker to entice lenders to buy a bond or preferred stock of the company at a reduced interest rate. The lender can obtain an equity kicker from a minimum of 10% to a maximum of 80%, depending on the risk of the investment.

When a borrower attaches an equity incentive to the terms of the debt advanced by the financiers, this incentive is called a kicker. While on the one hand the lenders lend at a relatively low interest rate in relation to the risk of the transaction, on the other hand they obtain a share in the capital stock that can be exercised at a future date when a liquidity event occurs.

Uses of the equity kicker

Companies that offer an equity investment option cannot access credit from traditional funders. These funders usually provide loans to companies with adequate cash flow to service the loan, as well as a sufficient asset base to act as collateral for the loan.

Most of the companies that issue equity kickers are start-ups and early stage companies that have not yet accumulated enough assets. They offer a kicker as a way to attract investors who would otherwise not be interested in lending to the company.

Example 1: Equity Kicker

Let’s take the example of XYZ, a company that makes wine glasses. The company is in the process of expanding its manufacturing plant to increase annual production. XYZ has been operating for three years but is still unable to obtain bank or conservative financing due to its high perceived risk.

The company plans to raise 800,000 euros to finance this expansion. It can obtain 400,000 euros internally with the resources generated by the activity itself. On the other hand, the company plans to waive 10% of capital for every 100,000 euros borrowed from investors.

Three investors – A, B and C – join forces to finance XYZ’s expansion. Investor A is willing to provide 200,000 euros, while B and C are ready to contribute 100,000 euros each. This means that lender A gets an initial kicker of 20%, while B and C get 10% each. However, investors can only exercise the right to obtain shares at the time of sale of the company.

Example 2: Warrants

Suppose that the debt is structured as a guarantee, where lenders are given the option to buy a certain amount of shares at a certain price at a future date. For example, the borrower may give 10% guarantee coverage on the amount provided by each lender to the company.

Using the figures in Example 1, we can deduce that investor A will get EUR 20,000 in warrants, while B and C will each get EUR 10,000 in warrants for the company’s shares. The price of the shares will depend on the most recent round of capital.

The options of equity kicker lenders

Lenders provide financing to a company to help it meet certain performance targets and increase the value of the company above its current market value. In return, lenders obtain an equity stake that can only be paid out if a certain milestone or liquidity event occurs. If neither of these events occurs, the lenders will continue to maintain their equity position.

As shareholders, they benefit from regular dividend payments when the company’s financial results are published, as well as from a percentage of profits that is proportional to their percentage of equity. In the event that the company reaches a certain agreed-upon profit potential or when the owners decide to sell the company, the lenders are paid first when these events occur.

The equity kicker in the real estate sector

Equity kickers are also used in the real estate business. A lender may provide a real estate loan at a reduced interest rate in exchange for a share of the total income from the property. The kicker may be provided when the borrower lacks sufficient collateral to secure the loan, but is expected to be able to repay the loan with a potential for future earnings if he obtains funds to finance his operations or expansion.

The equity kicker can be structured so that the lender receives a percentage of the gross rental income generated by the property if it exceeds a certain agreed-upon amount. It may also depend on a future event, such as the sale of the property, where the lender will receive a percentage of the sale proceeds depending on the amount of its interest in the business.

For example, suppose a borrower borrowed 1 million euros to buy a luxury home. The borrower uses the loan to complete the purchase and renovate the home for lease. Immediately after the renovations, the value of the house doubles to 2 million euros, due to the growing demand for this type of property. If the borrower initially provided 10% equity to sweeten the deal, it means that the lender will get a 10% share of the value earned by the property once it is sold.

Altria achieved 56 million euros in financing for its clients in 2019

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The financial consulting firm for companies continues its upward trajectory and is positioned as the reference in obtaining bank and alternative financing for the segment of medium and large companies

The financial consultancy firm Altria Corpo, which specialises in medium and large companies, obtained 56 million euros in financing for its clients in 2019, an increase of 10% over the previous year and a new record for the firm. The loyalty of the companies that repeatedly trust Altria as their partner in obtaining financing, as well as the increase in the client base thanks to the expansion of its number of managers and consultants, have made these results possible.

Among the relevant operations that Altria has advised on are a significant number of long-term loans, for amounts between 1 and 3 million euros, to undertake new investments in companies from the most varied sectors. The financial providers that have granted this type of operation are banks, public entities and direct lending funds. As Ramiro Lama, Altria’s partner and head of financing, points out, “in this type of operation, with a high amount and where it is more difficult for companies to obtain financing, is where Altria can give greater added value to the relationship with its customers. Altria’s knowledge of the financial needs of its clients and its ability to structure these needs among the diversity of alternatives that are emerging in the Spanish and international markets, are the reason why medium-sized companies find in Altria the right partner to seek financing”.

Altria’s current team in Barcelona

For Altria, 2019 has meant a significant investment with the incorporation of new professionals, the expansion of financial providers such as national and international funds, as well as the search for operational excellence and customer service. This lays the foundation for serving larger companies and continuing to offer our clients the best financing solutions for their needs.

One of the company’s milestones in 2019 is the opening of its Madrid office, which will certainly enable the number of clients and the volume of advice to continue to grow this year. Other lines of business that are gaining in importance are strategic and financial consultancy, through which Altria helps clients to improve their financial management and the economic profitability of the business; advisory services for the purchase and sale of companies and the obtaining of capital and new partners; and the intermediation of real estate operations (residential, commercial and industrial).

Altria is a firm founded in 2014 by Albert Gumà and based in Barcelona. Its clients are medium and large companies, to whom it offers its experience in all types of debt and equity financing, and access to more than 150 financial providers including banks, alternative financing, public financing, debt funds and other instruments. In its 6 years of existence, Altria Corpo has positioned itself as a reference in the search for financing for medium and large companies, with an accumulated amount of advice of more than 240 million and more than 400 operations. The scope of the companies advised covers the entire Spanish territory, with a concentration in Catalonia, which represents 80% of the total advised.