“MADRID, July 6 (Reuters) – Spain’s bank restructuring fund placed less than expected in a bond issue on Tuesday and paid a hefty premium underlining the country’s difficulty in raising cash to carry out a reform of the banking sector.
The FROB raised 1.75 billion euros ($2.5 billion) through a 5-year bond, priced at 270 basis points over mid swaps, a spread that was over 10 times wider than what it paid on its first issue in November 2009.
The sovereign-backed bond had been expected to raise 3 billion euros to plug a funding gap in the country’s financial system.”
These bonds carry an explicit and irrevocable guarantee from the Kingdom of Spain, i.e. an investor should see the FROB bonds as sovereign debt. Since the issuance only raised €1.75bn out of a €3.0bn target, this is a significant failure.