Jet Airways’ woes are now spilling over to its joint venture partner Etihad Airways. An entity set up by Etihad to finance its global affiliates has said that Jet has failed to pay interest due on loans extended to it.

Jet had failed to pay interest due on March 19, said filings by EA Partners I, an investment vehicle set up in 2015 by Etihad. The pay was delayed owing to “temporary liquidity constraints” at Jet, it added.

Financing airlines

According to Reuters, Etihad set up two vehicles — EA Partners I and II — which sold $1.2 billion of bonds to raise funds for several airlines. The structure was designed to provide financing for the airlines while minimising the burden on the balance sheet of their Abu Dhabi-based parent company. The Reuters report said airlines each guarantee as much as 20 per cent of the bonds, making regular contributions into a cash pool from which coupons are paid to investors who buy the securities.

“In addition, because the funds standing to the credit of the liquidity pool are less than the Cure Limit, a remarketing event has also occurred in respect of the Jet Airways debt obligation,” said EA Partners I. “However, because the previous remarketing agent has resigned, and the issuer has not been able to appoint a successor, the debt obligation remarketing...cannot commence at this time.”

A remarketing agent is a dealer or dealer bank responsible for the pricing of variable rate demand bonds. The agent periodically sets and resets the interest rate. If bonds are tendered, the agent helps sell tendered bonds to another purchaser.

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