Debt covenant and default risk

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

As at 31 December 2014, Snam has unsecured bilateral and syndicated loan agreements in place with banks and other financial institutions. Some of these contracts provide, inter alia, for the following: (i) negative pledge commitments pursuant to which Snam and its subsidiaries are subject to limitations concerning the pledging of real property rights or other restrictions on all or part of the respective assets, shares or merchandise; (ii) pari passu and change-of-control clauses; and (iii) limitations on certain extraordinary transactions that the Company and its subsidiaries may carry out.

The bonds issued by Snam as at 31 December 2014 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.

Failure to meet these covenants, and the occurrence of other events, some of which are subject to specific thresholds, such as cross-default events, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan. Exclusively for the EIB loans, the creditor has the option to request additional guarantees if Snam’s rating is downgraded to BBB- (Standard & Poor’s) or Baa3 (Moody’s).

With regard to the preventative measure of judicial administration of which subsidiary Italgas was notified by the Court of Palermo on 11 July 2014, developments taking place between the date of the measure and the date of this Report⁶⁷, as well as the actions taken by the Company, do not constitute grounds to activate the aforementioned contractual protections.