Innovative Debut Notes Platform From Etihad’s Equity Alliance Partners

September 28, 2015

London - Paul Hastings LLP, a leading global law firm, has advised EA Partners I B.V. on its issuance of $700 million 6.875% Notes due 2020, which closed today. EA Partners I B.V. is a financing platform set up to fund Etihad’s equity alliance partners’ airline, cargo and airport service businesses using a single, rated, secured note issuance. The platform structure provides long term funding on standardised terms for Etihad Airways, Air Berlin, Air Serbia, Air Seychelles, Alitalia, Jet Airways and Etihad Airport Services via a bespoke package of debt instruments. The Notes benefit from Etihad’s “A” credit rating on an indirect basis, but avoid any on-balance sheet liability for Etihad in respect of its airline alliance partners. A novel combination of structured and leveraged finance features were used in the structure to provide credit enhancement and longevity in the event of underlying obligation defaults, including:

Secured cash deposits of the equity alliance partners which accrete over time and which service payments on the Notes if there is a payment default on an underlying debt obligation;
Ratchet top-up accounts to augment the equity alliance partners' cash deposits in the event an alliance partner raises funding at a higher interest rate than under the structure; and
Remarketing provisions for stressed debt obligations and associated coupon reset mechanics to enable the platform to survive following an incurable event of default by an alliance partner.

Etihad’s equity alliance partners intend to use the proceeds from the underlying debt instruments for a combination of refinancing, capex and working capital. Paul Hastings assisted with the overall Note and collateral structuring and coordinated negotiations of the underlying debt obligations with each of Etihad’s equity alliance partners.

The Paul Hastings team was led by partners James Cole (bond structuring) and Karl Clowry (loan structuring) in London and Etienne Mathey in Paris, with associates Edward Holmes, Corey Blake, Albert Aharonian and Dionne Brown assisting on the capital markets aspects, associates Liam Mills and John Lambillion assisting on the underlying debt instruments, partner Arun Birla and associate David Mallett assisting on the tax aspects, partner Ugo Giordano and associate Sofia De Cristofaro assisting on the Italian law governed minibond issued by Alitalia, and partner Christian Parker and associate Karen Stretch assisting on hedging arrangements in the structure.

Anoa Capital acted as lead arranger, and Goldman Sachs, Anoa Capital and ADS Securities acted as placement agents. The placement agents and BNY Mellon, as trustee, were advised by Ashurst, led by partner Francis Kucera and counsel Malcolm Charles, respectively. Freshfields Bruckhaus Deringer advised Etihad. Loyens & Loeff N.V. advised EA Partners I B.V. on Dutch law aspects of the note issuance and underlying security arrangements.

This unique debut transaction achieved Etihad’s highly specific commercial goals through the use of a combination of features from capital markets structured finance and leveraged loan products. It was successfully completed over nine months under challenging marketing conditions. Freshfields helped overcome some significant structuring challenges for a number of the airline partners arising as a result of local regulatory restrictions, and the Ashurst team provided a collaborative approach on the novel cash management structuring and security elements of the deal.

Paul Hastings is a leading global law firm with a strong presence throughout Asia, Europe, Latin America, and the United States. Through a collaborative approach, entrepreneurial spirit, and commitment to client service, the professionals of Paul Hastings deliver innovative solutions to many of the world’s top financial institutions and Fortune 500 companies.