Valencia loses government backing on debt payment

March 12, 2013

Valencia on Tuesday lost the financial backing of its regional government which had stepped in to guarantee loan repayments on millions of euros (dollars) borrowed in 2009.

A regional judge revoked the guarantee that made Valencia's government responsible to the lender, troubled Madrid-based bank Bankia, for the collateral. Following a lawsuit filed by two Valencia board members, the court ruled the government should not have covered that debt and ordered the cancellation of the guarantee.

''The ruling frees the government of the financial burden of maintaining the club,'' regional vice-president Jose Ciscar said.

''We have said these are other times, with other priorities, and that right now governments cannot be the guarantors of sports organizations.''

The guarantee had been signed off by Valencia's government, to be paid through its Valencia Finance Institute to Bankia when required. Less than a month ago, the institute paid Bankia ?4.8 million of an installment due on Aug. 27, 2012.

However, the court's decision raised questions about who would own the club's stock if the bank foreclosed on the loan.

The club's foundation continues to own the shares, but its position is undermined by the fact that it has been unable to make two out of three recent repayment installments due on the ?75 million ($97.7 million) borrowed - giving the bank a strong claim.

Ciscar indicated there would still be room for maneuver.

''The government's guarantee of that loan disappears, but that does not automatically mean that Bankia has now to be Valencia's owner,'' he said.

Ciscar said the government still had to review the ruling in detail to determine what it would mean for the club. ''We know how important Valencia is to our regional society,'' he said.

Calls to the club went unanswered and there was no comment on its website.