By Davide Barbuscia
DUBAI, April 26 (Reuters) - Etihad
Airways' bonds raised through a special purpose vehicle have nosedived in the secondary market, losing almost 10 cents on the dollar over the past two days, traders and portfolio managers said.
The special purpose vehicle (SPV) includes the Abu Dhabi airline and several other carriers in which it has equity stakes.
The bonds dropped after workers at Alitalia , which is 49 percent-owned by Etihad, rejected the company's latest turnaround plan on Monday, blocking the loss-making Italian airline from accessing rescue financing.
Etihad raised some $1.2 billion in bonds over the past two years through a special purpose vehicle (SPV) called EA Partners.
The SPV's notes - a $700 million bond maturing in 2020 and a $500 million bond maturing in 2021 - were trading in the low 90s on Wednesday.
A trader spotted the 2020s with a cash price of 92-93 while the 2021s were quoted at 90.75-91.95.
Both bonds were quoted at par or slightly above par before Alitalia's workers rejected the latest turnaround plan.
Etihad did not immediately respond to a request for comment.
"The Alitalia news has put a lot of pressure on the bonds and it's very difficult to work out where you're going to be sitting with such complex structures," said a Dubai-based fixed income portfolio manager.
It is not clear to what extent Etihad can guarantee the bonds should one of the companies in the SPV portfolio default, he added.
A second portfolio manager said: "Etihad may try to find a way to bail the instrument by maybe replacing the Alitalia note in the structure through a private transaction, but I wouldn't assume it. The note does have Alitalia risk."
The proceeds of the $700 million five-year bond issued by EA Partners in 2015 were used to enter into separate debt obligations with the entities involved, which were Etihad Airways, Etihad Airport Services, Alitalia, Air Berlin , Jet Airways, Air Serbia and Air Seychelles.
The bond had no cross-default provision, and according to its structure none of the SPV partners is legally obliged to support other partners in the event of a default.
Proceeds of the $500 million bond issued by EA Partners II in 2016 represented separate debt obligations too, but in this latest issuance the group of debtors did not include Jet Airways.
According to the Dubai-based portfolio manager, the 2021 notes dropped more sharply than their 2020 counterparts over the past two days because the structure of the most recent bond does not include exposure to Jet Airways, which is considered to be one of the best credits in EA Partners' portfolio.
Etihad issued a $1.5 billion sukuk in 2016 but that paper was issued by the carrier alone, rather than through an SPV.
The Islamic bond was seen trading with a cash price of 101 on Wednesday. "That bond is basically 100 percent government paper so there won't be a knock-on effect," said the portfolio manager.
(Editing by Adrian Croft) ((Davide.Barbuscia@thomsonreuters.com;))