DUBAI (Reuters) – Holders of around $ 70 million of distressed bankruptcy bonds issued on behalf of Air Seychelles are considering options, including law enforcement against the African carrier, sources and documents show.
The action under consideration is the latest twist in broader efforts by creditors to recover $ 1.2 billion in funds owed by Abu Dhabi’s Etihad Airways and related airlines, including Air Seychelles.
Etihad is Air Seychelles’ second largest shareholder.
Air Seychelles, which has been particularly hard hit by the coronavirus crisis, was part of a consortium including Etihad and associated airlines that borrowed $ 1.2 billion via a special purpose vehicle in 2015 and 2016.
Air Seychelles and a creditors steering committee have been engaged in restructuring talks since last July after the airline said it was struggling to honor its share of the debt, worth around $ 70 million, due to the COVID-19 outbreak.
Creditors are now considering options, including enforcement action against the carrier, sources familiar with the matter said, the latest turning point in a debt saga resulting from the collapse of Etihad’s strategy to s’ engage in global partnerships with airlines such as Air Berlin, Jet Airways and Alitalia. , which have since gone bankrupt.
Air Seychelles’ latest proposal, leaked last month in a regulatory filing by the ad hoc vehicle, EA Partners, called for more than 70% depreciation of outstanding debt, with the remaining payment guaranteed by the Seychelles government. However, this was rejected by the creditors.
“The Noteholders’ Committee has observed no urgency or seriousness in the proposals received from Air Seychelles to date,” the creditors said in a statement to EA Partners, released in a separate file last month.
The creditor’s proposal provides for the cancellation of 20% of the debt by EA Partners, with full payment of accrued and unpaid interest. They said their proposal recognized the difficulties faced by the airline and adequately supported its recapitalization.
Air Seychelles declined to comment and the Seychelles government did not immediately respond to an email seeking comment.
CHALLENGES FOR AIRLINES
Even before the coronavirus froze most air traffic, EA Partners tickets had lost more than half of their value after several of the borrowing airlines went bankrupt.
Etihad is not legally obligated to back the bonds because the original $ 1.2 billion agreements called for each carrier to repay its own portion of the debt, according to the debt documentation reviewed by Reuters.
Etihad bought a 40% stake in Air Seychelles in 2012, investing $ 20 million and providing an additional loan of $ 25 million to help Air Seychelles meet its working capital needs and support network development.
The Seychelles government is now considering buying Etihad’s entire 40% stake in Air Seychelles at face value, one of the regulatory documents from December said. Etihad, which did not respond to a request for comment, also agreed to a 79% haircut on debt it owed to the African airline.
Etihad’s stake in another airline, Air Serbia, was also recently reduced, after the Serbian government recapitalized the airline, Air Serbia said last month.
Aviation has been one of the industries hardest hit by the COVID-19 crisis, forcing airlines to lay off staff and demand government bailouts. Etihad cut jobs and wages.
The Abu Dhabi public carrier was recording losses even before the coronavirus outbreak, but its baseline operating loss worsened to $ 758 million in the first half of last year as passenger traffic fell by almost 60% due to the pandemic.
Reporting by Davide Barbuscia; additional reporting by Omar Mohammed; Editing by Susan Fenton