Eroski has the noose around its neck

When the Fagor storm slowed last month, leaders from the supermarket chain Eroski did not want to consider the consequences that the Fagor bankruptcy could have on its own business. Further, they repeatedly denied that a contagion would break out and refused to let the Mondragón Corporation lend money to help Fagor.

Eroski's message could not have been clearer: solidarity ends when survival is at stake. Pumping funds into Fagor was, in its opinion, throwing away good money. But the group's future is now at stake as a result. Eroski has met stringent bank requirements and agreed to apply a 30% loan oversight for investors. According to a communication from the CNMV, they may receive 660 million euros in debt shares worth 15% of the nominal value of their original investments plus an option to switch out for 55% in bonds after twelve years.

In turn, the group is requiring creditors to forgive 50% of its debt (around 2.5 billion euros) and is threatening to suspend 37 million in loan payments that are due on January 31. Also problematic, the investors who are holding on to subordinate shares that they bought in good faith from the largest cooperative company in the world, have rejected the proposal. They want their voices heard. The word "confidence" was pushed aside when the company started to suffer as the real estate bubble burst. The possibility that both parties cannot reach an agreement could do irreparable harm to Eroski, which is an event that company leaders should duly consider.