Risk of default and the debt covenant

The risk of default consists of the possibility that the loan contracts concluded contain provisions that provide the lender with the ability to activate contractual protections that could result in the early repayment of the loan in the event of the occurrence of specific events, thereby generating a potential liquidity risk.

At 31 December 2012, Snam has bilateral and syndicated loan agreements with banks and other financial institutions. Some of these contracts provide, inter alia, for the following: (i) a financial covenant based on which the Company ensures that the relation between the net financial debt and the RAB will not exceed a contractually defined level; (ii) negative pledge commitments pursuant to which Snam and its subsidiaries cannot pledge real property rights or otherwise bind all or part of the respective assets, shares or merchandise; (ii) pari passu and change of control clauses; and (iv) limitations on the extraordinary transactions that the Company and its subsidiaries can carry out.

The bonds issued by Snam on 31 December 2012 as part of the Euro Medium Term Notes programme provide for compliance with covenants that reflect international market practices regarding, inter alia, negative pledge and pari passu clauses, but which do not encompass financial covenants.

Failure to comply with these covenants and the occurrence of other events, some of which are subject to specific threshold values, such as cross-default events, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan.

In 2012, all the contractually required verifications of the financial covenants confirmed compliance.

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