Ailing Spanish utility giant Abengoa had until the end of March 2016 to reach agreements with its creditors to restructure its debt.

Restructurings are nothing new, or necessarily newsworthy, but Abengoa’s debt problems are unprecedented for the European utility sector. With €8.9 billion ($9.7 billion) of gross debt on its balance sheet, an inability to meet the deadline would trigger the largest bankruptcy in Spain’s history.

In late 2015, Abengoa was given four months by the Spanish government to try and come up with a new, viable financial plan. Abengoa is protected under Article 5 of the Spanish Insolvency Law which, for a period of four months, allowed the company to protect its value while it worked on a rescue strategy.

Abengoa has experienced several years of declining performance, after a highly ambitious renewables build-out programme failed to produce the gains the 75 year-old utility had anticipated.

In July 2015, it launched a €650 million rights issue of new shares to try and reduce its debt. A month later the business was forced to announce that its free cash flow for 2015 had an €800 million shortfall. The threat of bankruptcy arose when a deal for a €350 million credit line from Spanish industrial group Gonvarri fell through in November.

The shares issue and a plan to sell €500 million of existing assets had not been enough to buoy shareholder confidence. When pre-insolvency proceedings launched in November, Abengoa was trading at just €0.33 a share.

Abengoa’s solution, announced with days to go before the deadline, represents a complex balancing act between its multiple operating bases. In its home country of Spain, it has managed to convince 75% of its lenders to approve its restructuring plan, comfortably above the 60% it needed. Creditors include Santander, HSBC, CaixaBank, Banco Sabadell, Bankia and Banco Popular. The objective is that the conditions of the contract will be applied to all lenders.

In another Abengoa stronghold, the United States, the company has this week filed a petition under Chapter 11 of the US Bankruptcy Code for bankruptcy protection. Under Chapter 11, the company continues to run and does not go into liquidation. The debtor instead seeks an adjustment of debts, either by reducing the debt or by extending the time for repayment.

The filing came shortly after Abengoa also filed for Chapter 15 protection, which shields its US company assets from its overseas legal proceedings.

The utility’s restructuring plan involves shedding non-core assets and rebuilding ownership of the firm to consist mainly of existing creditors and new lenders, whittling existing shareholders down to only around 5% of equity.

Abengoa's 2016 will now consist of ongoing talks with creditors to convince them of the viability of their plans. If talks begin to fail, or agreements are not reached, the Chapter 11 protection could theoretically be converted to Chapter 7, which represents liquidation. 

Distressed utilities are perhaps a casualty of the rapidly evolving European energy market. Far from the monopolistic, vertically-integrated one-stop shops of yesteryear, utilities are now struggling to compete in an increasingly fragmented and competitive marketplace. New players and technologies have disrupted what was once a stable, regulated market.

To date Abengoa has managed to keep the wolves from the door – the market will now have to watch what it will do with the stalling time it has asked for from the US courts.