TAP risks defaulting on several major Portuguese banks if the Ministry of Finance does not authorize Parpública and the Directorate General of Treasury and Finance (DGTF) to confirm the maintenance of state guarantees for a 147-million-euro loan by Tuesday, June 14, reports Jornal Económico..

As far as the Jornal Económico has learned, a banking syndicate formed by CGD, Santander, Novo banco, Montepio and Eurobic is waiting for the government to confirm the continuity of the commitments that were assumed by Parpública and the DGTF at a time when the shareholder structure of TAP was very different.

Following the state intervention and the injection of 1.2 billion euros that took place at the end of last year, with the authorization of Brussels, TAP S.A. is no longer owned by the holding company TAP SGPS, and is now controlled 100% by the DGTF. Before that, in the summer of 2020, with the departure of the shareholder David Neeleman, TAP SGPS came under the control of the Treasury and Parpública, keeping as minority shareholders the businessman Humberto Pedrosa, the pilots and other workers of the company. TAP SGPS was left without TAP SA and, after the liquidation of loss-making TAP Engenharia e Manutenção Brasil and the sale of its stakes in Groundforce and Cateringpor (agreed with Brussels), it will be left with only Portugália and the TAP Group's Health Care Unit.

In an unusual situation, TAP SGPS and TAP S.A. are both controlled by the state - directly or indirectly - and have the same directors, but have no direct relationship with each other. Although collectively they present themselves as the "TAP Group," the two companies are now legally separate. It was this fact that led the creditor banks to demand additional guarantees from Parpública and DGTF, the latter as the new sole shareholder of TAP S.A..

Without this additional guarantee, the banks refuse to grant a formal waiver to TAP so that the company does not have to comply with the debt ratio to which it committed under the financing contract. The deadline for granting the waiver is tomorrow, 14 June, so if the DGTF and Parpública do not guarantee their previous commitments, the banks will not grant the waiver and TAP risks defaulting. Unless the deadline is extended.

According to the sources heard by Jornal Económico, TAP has been trying to make the government aware of the problem, given the consequences of a possible default. However, according to one of the sources, the fact that an additional guarantee from the DGTF may be considered by the European Commission as additional state aid is hindering the process.

Moreover, the Law of Portuguese State Budget for 2022 does not specify the existence of a guarantee to TAP in this amount, although the document does provide for financial support to the company of up to 990 million euros as part of the restructuring plan agreed with Brussels. It should be remembered that, also under this plan, the state is expected to guarantee 90% of a new loan that was granted this year by several Portuguese banks in the amount of 360 million euros.

Sister companies, debts apart

The conditions of the loan, which was renegotiated in 2017, stipulate that TAP must meet certain debt and equity ratios. Given the difficult situation the company is in - with a record loss of 1.6 billion euros in 2021 - these ratios were not met in the year ending December 31, so, as had already happened at the end of the third quarter of 2021, TAP asked the banks for a waiver, i.e. a formal exemption from the obligation to comply with these conditions.

However, this time the banks have made it a condition that Parpública and DGTF guarantee the financing, invoking the radical change that occurred in the shareholder structure of TAP S.A. in the fourth quarter of last year, with the capital increase carried out with public money.

The need to get the waiver from the banks is mentioned in TAP S.A. report and accounts 2021The company led by Christine Ourmières-Widener was confident that this waiver would be granted in the "allowed period". It also said that any breach of contract would not require early repayment of the loan.

"Regarding the financing with a syndicate of Portuguese banks in the amount of 147 million euros outstanding at December 31, 2021, the financial covenants that have as reference the financial statements at this date are higher than the contractually agreed limits. However, their non-compliance does not generate the possibility of early repayment," the document states.

It adds, "Additionally, as of the date of approval of these financial statements, it is planned to obtain the waiver with respect to the breach of its covenants in the permitted period."