EA Partner bonds

Eleanor Steed
By Eleanor Steed August 24, 2017 11:32

EA Partner bonds

In a commentary, Zafar Nazim, JPMorgan analyst, has provided an up-to-date assessment of the impact of airberlin bankruptcy announcement on the EA Partner I & II bonds. Nazim states that the bonds are “getting whipped since the announcement, despite lack of evidence of either Etihad or Abu Dhabi withdrawing support”, he further warns that the withdrawal of support for Air Berlin is NOT the same as withdrawal of support for EA Partner bonds. “The former is ultimately a financial decision (which probably should have been taken a while back, in our view) that acknowledges the non-viability of continuing to support Air Berlin. The latter though involves walking away from a debt obligation that some market participants expected to be supported by Etihad / Abu Dhabi.”

Nazim goes on to state that Air Berlin’s bankruptcy will “likely have almost no consequences for Abu Dhabi, a decision by Etihad / Abu Dhabi not to step in to support EAP bonds could lead to repercussions for future financing by Abu Dhabi GREs – and in our view would also hit home on account our understanding that a substantial quantum of these bonds are housed among domestic investors.”

JPMorgan continues to like both bonds, at least one of which (2020 notes) is now trading around its estimated theoretical recovery value of 86 in the unlikely event of a default. Nazim estimates that 2021 notes will recover at 80. But adds that further volatility / weakness in bond prices “is possible, particularly if and when ‘remarketing’ of Air Berlin and Alitalia obligations commences”.

Eleanor Steed
By Eleanor Steed August 24, 2017 11:32