Abu Dhabi said to study restructuring options for $1.2bn Etihad-linked bonds

An Etihad Airways Airbus A380 taking off in London. (Shutterstock)
Updated 19 September 2018
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Abu Dhabi said to study restructuring options for $1.2bn Etihad-linked bonds

  • Bonds issued through SPV with other airlines
  • Etihad asks Abu Dhabi government for help

DUBAI: 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 (SPV) called Equity Alliance Partners (EAP) in 2015, and $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.
Any type of restructuring would require bondholders’ approval.
Etihad agreed to cover Alitalia’s portion of the debt, equivalent to around $230 million, at maturity through an agreement between the airlines which was signed before Alitalia entered special administration. But Air Berlin’s portion, of roughly the same amount, has no such guarantee.
Any intervention by the Abu Dhabi government, which could materialise before the end of this year, might see Abu Dhabi inject around $200-300 million into the issuing vehicle, said the sources.
This amount would be applied towards a partial early redemption of the notes at a discount of around 15 percent to par value for note holders seeking an early exit, the sources said. That would imply a write-off of Air Berlin’s obligation under the structure, while Alitalia’s debt would be honoured.
Creditors unwilling to exit at a discount might swap their notes into new instruments with a higher credit rating. The notes could feature a credit enhancement in the form of a guarantee of the obligations of Air Serbia and Air Seychelles, which are part of the borrowing structure, the sources said.
The first tranche of the notes, due 2020, is rated CC by Fitch, while the second tranche due 2021 is rated C.
With an Abu Dhabi intervention, the notes would become investment grade because of the oil-rich emirate's strong credit profile, so any capital injection by the government could be partially offset by a reduction in interest payments.
Last month, the SPV said it received a bid of just over $4 million in cash for the debt obligations of Alitalia and Air Berlin across the two EAP bond tranches.
The bid included around $6 million that would become payable to the SPV in case of recovery of an equivalent amount from the obligations, and a payment of 60 percent of money recovered after a 35 percent recovery threshold was reached.
The bid had an expiry date of Aug. 31; the SPV asked the bidder to extend the deadline to give note holders time to review terms. Since then, the SPV has given no update on the bidding process.


T-Mobile, Sprint see Huawei shun clinching US deal -sources

Updated 10 min 13 sec ago
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T-Mobile, Sprint see Huawei shun clinching US deal -sources

WASHINGTON/NEW YORK: T-Mobile US Inc. and Sprint Corp. believe their foreign owners’ offer to stop using Huawei Technologies equipment will help with the United States clearing their $26 billion merger deal, sources said, underscoring the lengths to which Washington has gone to shut out the Chinese company.
Like all major US wireless carriers, T-Mobile and Sprint do not use Huawei equipment, but their majority owners, Germany’s Deutsche Telekom AG and Japan’s SoftBank Group Ltd, respectively, use some Huawei gear in overseas markets.
People familiar with the deal between T-Mobile and Sprint, the third and fourth largest US wireless carriers, said US government officials had been pressuring Deutsche Telekom to stop using Huawei equipment, and the companies believed they had to comply before a US national security panel would let them move forward on their deal.
Both Deutsche Telekom and Softbank were reported this week to be seeking to replace the world’s biggest network equipment maker as vendor. Now, T-Mobile and Sprint expect the US panel, called Committee on Foreign Investment in the United States (CFIUS), to approve their deal as early as next week, the sources said.
The sources, however, cautioned that negotiations between the two companies and the US government have not been finalized yet, and any deal could still fall through. They asked not to be identified because the matter is confidential.
Sprint, T-Mobile, Deutsche Telekom, SoftBank and CFIUS declined to comment. Huawei did not respond to a request for comment.
The US government and its allies have stepped up pressure on Huawei over concerns that the company is effectively controlled by the Chinese state and its network equipment may contain “back doors” that could enable cyber espionage, something which Huawei denies. Several telecom operators in Europe and Australia have said they will exclude the Chinese firm from their fifth-generation (5G) mobile networks.
The pressure on Huawei has already heightened tensions between the United States and China over trade. Earlier this month Meng Wanzhou, Huawei’s chief financial officer and daughter of its billionaire founder, was arrested in Canada on a US extradition request. US prosecutors have accused her of misleading multinational banks about Huawei’s control of a company operating in Iran. China has asked for her release.
In an interview with Reuters earlier this week, US President Donald Trump drew a connection between the Huawei CFO extradition case and his administration’s trade row with China, saying he would be willing to intervene if it helped resolve the dispute or serve US national security interests.
The United States has been stepping up its targeting this year of both Huawei and ZTE, China’s second-largest maker of telecommunications equipment. Last March, Trump blocked chip maker Broadcom Ltd’s attempted $120 billion takeover of US peer Qualcomm Inc. over concerns the deal could boost Huawei’s competitive position.
ZTE was crippled in April when the United States banned American firms from selling it parts, saying the company broke an agreement to discipline executives who had conspired to evade US sanctions on Iran and North Korea.
The ban, which became a source of friction in Sino-US trade talks, was lifted in July after ZTE paid $1.4 billion in penalties, allowing the firm to resume business.
SoftBank plans to replace 4G network equipment from Huawei with hardware from Nokia and Ericsson, Nikkei reported on Thursday, without citing sources.
Deutsche Telekom, Europe’s largest telecoms company, on Friday said it was reviewing its vendor plans in Germany and other European markets where it operates, given the debate on the security of Chinese network gear.
The Justice Department and Federal Communications Commission must also approve T-Mobile’s and Sprint’s merger. T-Mobile previously said it expected the deal to close in the first half of 2019.