Spain's Latest Bailout Plan - Lottery Bonds

Submitted by Tyler Durden on 09/24/2012 08:13 -0400

• Capital Markets

Just when we thought Europe has already used the kitchen sink and then some in its arsenal of bailout ideas, here comes Spain proving there is always "something else." Bloomberg reports that the insolvent country which is not really insolvent as long as people keep buying its bonds on hopes it is insolvent, is launching "lottery bonds". To wit: Spain to sell bonds through state-run lottery operator to fund regional bailouts, two people familiar with the matter told Bloomberg’s Esteban Duarte and Ben Sills. The issue is part of €6 billion financing through Sociedad Estatal Loterias & Apuestas del Estado which is raising syndicated loan. Loterias official said financing details haven’t been completed. In other words, the national lottery, which as in Spain so everywhere else, is nothing but an added tax on a country's poor population but one which provides at least a tiny hope of a substantial repayment (which never happens for the vast, vast majority of players) so few actually complain about paying it, is about to shift the bailout cost to the nation's poorest. Who benefits? Why Spiderman towel makers of course. And insolvent banks.
In retrospect, it appears this is not exactly a new idea. From Businessweek two months ago:

Spain will use its national lottery, the operator with the biggest jackpot in the world, to provide aid to regional governments as the nation struggles to avoid a second bailout itself.

The state-owned lottery will contribute 6 billion euros ($7.3 billion), taking out a loan against future revenue, to a fund of as much as 18 billion euros to fund redemptions and deficits for regions that request it.

Regions, many of which have been shut out of debt markets for more than a year, will pay a “small spread” above the central government’s yields to borrow from the fund, de Guindos said. The government will demand budget cuts in return from the regions that choose to use the fund, he said.

...

Loterias & Apuestas del Estado, a debt-free company the government
tried to list on the stock market last year, has operated for almost 250
years in the world’s fourth-largest lottery market. The company’s
annual Christmas draw, known as El Gordo, or the Fat One, had a prize
pool last year of 2.3 billion euros. It had 2.6 billion euros of profit
in 2010, according to the annual report.

And from Dow Jones:

The Spanish government will take out a loan from its national lottery company to finance part of a newly- created fund to help Spanish regions pay debt maturities, Finance Minister Luis de Guindos said Friday, a move aimed at reducing the country's need to tap financial markets for expensive funding.

The regional fund will be run by the central government and will pay out a maximum of 18 billion euros ($22 billion) this year, Mr. De Guindos said at a press conference following the weekly Cabinet meeting. Spain will finance the fund by making Loterias y Apuestas del Estado SA, the most profitable of Spain's publicly-owned companies, take out a EUR6 billion loan, while the rest of the money will come from Spain's Treasury, he said.

The Treasury won't have to alter its issuance calendar as a result of the added financing needs, Mr. De Guindos added.

The fund is a response to repeated pleas for help from cash-strapped regional governments facing billions worth of maturities at a time when they are shut down from capital markets.

What can possibly go wrong: "step right up, play the lottery, win a Spiderman towel."
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