DUBAI May 8 Etihad Airways agreed at the end of
last year to repay a portion of two bonds maturing in 2020 and
2021 on behalf of Alitalia if the Italian airline ends up
defaulting, two sources familiar with the situation said on
Etihad and a number of airlines in which it has equity
stakes issued the bonds worth a combined $1.2 billion in 2015
and 2016 via a special purpose vehicle (SPV) known as EA
Alitalia's exposure to EA Partners corresponds to roughly 19
percent of the $700 million 2020 bond and about
20 percent of the 2021 bond, or about $235
million of the overall principal.
The sources were confirming an agreement first reported by
ratings agency Fitch on May 3, the day after Alitalia asked the
Italian government to put it under administration. The airline
had debts of about 3 billion euros ($3.3 billion) at the end of
Etihad, which has a 49 percent stake in Alitalia, declined
to comment on Monday about the debt assumption agreement.
Alitalia did not immediately respond to a request for comment.
According to the Fitch note, in the case of a default by
Alitalia on its debt, Etihad Investment Holding Company
(EIHC)has agreed to repay the principal of Alitalia's portion of
the debt issued by EA Partners. Fitch also downgraded the bonds
to CCC from B minus for the 2020 notes and B for the 2021 notes.
One of the sources familiar with the matter said Etihad had
probably informed Fitch about the debt agreement to prevent the
bonds from being downgraded further to DDD.
In a statement issued by the Irish stock exchange on Friday,
EA Partners said it was not aware of the agreement between
Alitalia and EIHC and had requested information from the
The bonds came under pressure in April when Alitalia workers
rejected the company's latest turnaround plan, a move that
ultimately forced the Italian airline to file for bankruptcy on
May 2 for the second time since 2008.
The Fitch note, however, sparked a rebound last week. The
bonds had been trading in the low 90 cents to the dollar at the
end of April but bounced almost 10 cents to par value after
Fitch mentioned the "internal debt assumption" deal.
"Quite the roller coaster," said an investment analyst at a
hedge fund in London. "The most shocking part of it to be honest
is Etihad not letting EA Partners know about its agreement with
"If it was for the benefit of EA Partners, why didn't they
inform the SPV in December? In that way the bonds would have not
gone down to the 90s when Alitalia rejected the turnaround
plan," the analyst said.
The debt agreement means that "bond holders will have little
incentive to accelerate Alitalia's debt in the event of a
default," said JP Morgan in a research note published last week
following the Fitch note.
($1 = 0.9135 euros)
(Editing by David Clarke)