S7 creditors appear divided over debt restructuring

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Creditors of Russia's S7 Airlines appear to be divided on a debt restructuring scheme proposed by the carrier.

A spokesman for S7 Group says it has reached an agreement with around 60 holders of bonds valued at Rb985 million ($29 million).

Under the deal, brokered by Raiffeisen Bank, S7 has redeemed a fifth of the bond at face value plus Rb5.7 million interest and committed to paying the balance over the next 18 months.

The carrier has not disclosed the source of funds, indicating that negotiations are still underway with other investors who hold the remaining bonds with a combined value of Rb1.3 billion.

Raiffeisen Bank is also seeking to reach a settlement on at least twice as much owed by S7 to a string of financial institutions led by Sberbank and Vneshtorgbank.

One creditor says all of S7's property and the bulk of shares are pledged to lenders as loan collateral and this narrows down the possibilities of recovering money by bondholders to debt rescheduling.

According to Russia's state company register, S7 has already lost full ownership rights to S7 Engineering and Sibir Technik - aircraft maintenance facilities located at its hub airports in Moscow and Novosibirsk respectively.

Alpha Bank has reportedly forfeited half of property at each of the two plants, pledged by S7, through several affiliated firms. The bank is the carrier's third-largest lender with a Rb1.5 billion loan maturing in the second quarter.

"These are the most liquid assets out there. They could generate income by maintaining aircraft not only for S7 but for other operators as well," says a source at Alpha Bank, claiming that it has also seized the carrier's training centre.