September 19, 2018 / 9:02 AM / a month ago

Abu Dhabi studies restructuring options for $1.2 bln Etihad-linked bonds -sources

DUBAI, Sept 19 (Reuters) - The government of Abu Dhabi is looking at proposals to restructure some $1.2 billion of troubled bonds that were issued by Abu Dhabi state-owned carrier Etihad Airways in partnership with other airlines, sources familiar with the matter said.

Etihad issued $700 million of bonds through a special purpose vehicle called Equity Alliance Partners (EAP) in 2015, and a further $500 million in 2016. Proceeds of the paper went to Etihad and other airlines it partially owned at the time, including Alitalia and Air Berlin, which are now both insolvent.

The notes were seen as strengthening Etihad’s partnerships with those airlines after it spent billions of dollars in acquisitions.

The EAP bonds have been trading at a significant discount for over a year, however, after Alitalia entered special administration and Air Berlin filed for bankruptcy.

Etihad has no legal responsibility to bail out the portion of the bonds which benefited the two European airlines as the notes have no cross-default provision.

But with over $500 million of the paper held by United Arab Emirates investors, it has asked the Abu Dhabi Department of Finance to find a way to reduce losses for investors and limit any damage to the reputation of the local debt market, sources familiar with the matter said.

The department is now working with a financial adviser to find restructuring solutions, said the sources. One option being discussed could involve adjusting the structure of the paper to obtain a better credit rating. Rating agency Fitch has been involved in some of the discussions, the sources said.

Etihad declined to comment while a spokesman for the Abu Dhabi Department of Finance did not respond to a request for comment. Fitch declined to comment. (Editing by Andrew Torchia)

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