Will Etihad agree to debt restructuring to avoid legal action?

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Etihad Faces Ultimatum on US$1.2 Billion Debt Restructuring

Bondholders holding US$1.2 billion in debt issued by Etihad Airways and associated airlines have presented the Abu Dhabi carrier with an ultimatum: agree to a debt restructuring or face potential legal action. This demand stems from a proposal submitted approximately a month ago by a debtholder steering committee, which has yet to receive a formal response from Etihad. The core of the proposal involves extending the debt's maturity by up to three years, but it hinges on Etihad or the Abu Dhabi government providing guarantees for loans made to partly owned airlines, such as Air Serbia and Air Seychelles.
Bondholder Proposal Details

The restructuring proposal, submitted by a steering committee composed of local and international investment funds, addresses the two bonds issued by Etihad in 2015 and 2016 through the special purpose vehicle EA Partners (EAP). Under the current terms, creditors are being asked to write off US$344 million of debt previously owed by the now-bankrupt carriers Air Berlin and Jet Airways. Furthermore, debt incurred by Alitalia is to be incorporated into the proposed refinancing, a move necessitated by a separate "debt assumption agreement" between Etihad and the Italian airline.
Potential Legal Recourse

Should Etihad decline to accept the proposed restructuring terms, the bondholders, acting through EAP, intend to pursue claims within the ongoing bankruptcy proceedings of Alitalia and Air Berlin. This legal avenue could compel Etihad to assume responsibility for Alitalia's outstanding debts, as stipulated by the earlier debt assumption agreement. This potential legal recourse represents a significant escalation in the efforts by bondholders to recover their investment, particularly given the airlines' prior financial struggles.
Pre-existing Debt Value Decline

Even prior to the widespread impact of the coronavirus pandemic on global air travel, the value of these debt notes had already experienced a substantial decline, losing more than half their worth. This erosion in value was primarily attributed to the bankruptcies of three airlines that had borrowed funds through the EAP structure. For Etihad, which has reported significant losses since 2016, successfully refinancing this debt could offer a critical reprieve, allowing for the deferral of hundreds of millions of dollars in repayments as the airline navigates the severe financial fallout from the current global crisis.

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Will Etihad agree to debt restructuring to avoid legal action?

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