COVID-19: European Commission approves increase in state guarantee line notified by Spain

Last August the European Commission (the “Commission”) approved the €40-billion increase in the line of state guarantees notified by Spain.

On March 24, Spain reported the first state aid measure in the context of the COVID-19 pandemic, entailing the creation of a line of state guarantees (known as “ICO loans,” after the entity that manages them) of up to €100 billion, which would be released in tranches.

The Commission’s decision, of which we notified you, approved the issue of a first tranche of €20 billion within 24 hours. The remaining tranches were gradually released under the national framework approved by the Commission at the beginning of April.

Several months after its approval, on July 27, Spain reported several modifications, emphasizing the need to increase the maximum budget of the guarantee line by an additional €40 billion. This increase had already been approved—pending notification to the Commission—through Royal Decree-Law 25/2020, of July 3, on urgent measures to support economic recovery and employment.

The increase of this guarantee line will also be released in tranches, and will be divided into sub-tranches of €5 billion for self-employed and small and medium-sized enterprises and €3 billion for large companies.

Unlike the line approved in March, the state guarantee will only be available for new loans, and refinancing transactions will therefore be excluded.

The maximum term of the guarantee is increased from five years (limit applicable under the national framework) to eight years, with higher guarantee premiums for the additional years (years six, seven and eight). It is important to note that fixed guarantee premiums are expected to be applied, so that the guarantee premium of the last year, which is particularly high in the case of years seven and eight, will be used for the entire term of the loan. Any potential losses will be borne proportionally and on the same terms by the financial institution and the State.

The other criteria for granting the aid (including other eligibility requirements, maximum coverage of the guarantee in relation to the loan amount, and compatibility criteria between aid) continue to be governed by the original decision of March 24 and the national framework.

Applications for aid may be submitted until December 1, 2020. State guarantees for new loans will be granted before December 31, 2020.

The Commission’s press release is available here. The decision is available at the following link.

We will keep you posted.