15. Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term financial liabilities

Short-term financial liabilities, amounting to €1,497 million (€1,351 million at 31 December 2015), and long-term financial liabilities, including short-term portions of long-term liabilities totalling €9,593 million (€12,445 million at 31 December 2015), break down as follows:

Short-term financial liabilities

Short-term financial liabilities, amounting to €1,497 million (€1,351 million at 31 December 2015), relate mainly to uncommitted variable-rate credit lines (€1,466 million).

The increase compared with 31 December 2015 (€146 million) is essentially due to net utilisations of uncommitted lines of bank credit (€143 million).

There are no short-term financial liabilities denominated in currencies other than the Euro.

The weighted average interest rate on short-term financial liabilities was 0.07% (0.05% for 2015).

The market value of short-term financial liabilities is the same as their book value.

Long-term financial liabilities and short-term portions of long-term financial liabilities

Long-term financial liabilities, including short-term portions of long-term liabilities, amounted to €9,593 million (€12,445 million at 31 December 2015).

The breakdown of bond loans (€7,610 million), indicating the issuing company, the year of issue, the currency, the average interest rate and the maturity, is provided in the following table.

The €2,201 million reduction in bond loans compared with 31 December 2015 was mainly due to: (i) the liability management transaction, concluded in October 2016, which involved the buying back on the bond market at a fixed rate for a total nominal value of €2.75 billion with an average coupon of approximately 3.3% and a remaining term of around 3 years, following a total outlay of approximately €3.1 billion³¹; (ii) the repayment of 3 bonds that had reached their natural maturity in January 2016, July 2016 and October 2016, for a nominal value, respectively, of €150 million, €700 million and €300 million. This reduction was partly offset by the new bond issues made with regard to the financing of part of the liability management transaction, relating to two fixed-rate bond loans, issued on 25 October 2016, for a nominal value of €1,250 million and €500 million, respectively.

Payables for bank loans (€1,982 million) relate to term loans, of which €1,182 million concern European Investment Bank (EIB) funding. In 2016, note that under the scope of the operation separating Italgas Reti S.p.A. from Snam S.p.A. the assumption of Snam S.p.A.’s debt by Italgas S.p.A. relating to two loans provided to Snam S.p.A. by the EIB intended to fund Italgas S.p.A. projects with a total nominal value of €424 million was finalised. The assumption of the two EIB loans and the repayment net of bank term loans of a nominal value of €200 million, led to a total reduction in bank loan payables worth a nominal €624 million.

There are no other long-term bank loans denominated in currencies other than the euro.

The weighted average interest rate on bank loans used (excluding loan contracts with the EIB) was 0.4%³² (the same as in 2015).

There were no breaches of loan agreements as at the reporting date.

The market value of the long-term financial debt, including the short-term portion, stands at €10,230 million³³ (€13,383 million at 31 December 2015).

Snam has unused committed and uncommitted credit lines of €3.2 billion and €1.7 billion, respectively.

Financial covenants and negative pledge commitments

At 31 December 2016, Snam had medium- and long-term loans from a pool of national and international banks. Some bilateral loan agreements were also entered into with these banks. These medium-/long-term loans are subject, inter alia, to the usual covenants imposed in international market practice, e.g. negative pledge, pari passu and change of control clauses.

In particular, the syndicated loans and bilateral loans are subject, inter alia, to a negative pledge covenant pursuant to which Snam and the Group subsidiaries are subject to limitations in terms of pledging real property rights or other restrictions on all or part of the respective assets, shares or merchandise, and/or documents representing merchandise; this covenant is subject to set expiry dates and to exceptions on restrictions for which the creation and/or existence is explicitly permitted.

At 31 December 2016, Snam also had medium/long-term loans taken out with the European Investment Bank (EIB), the contractual clauses of which are broadly in line with those described above. Exclusively for the EIB loans, the lender has the option to request additional guarantees if Snam’s credit rating is lower than BBB (Standard & Poor’s/Fitch Ratings Limited) or Baa2 (Moody’s) for at least two of the three ratings agencies.

At 31 December 2016, the banking financial liabilities subject to these restrictive clauses amounted to approximately €2.0 billion.

Failure to comply with the covenants established for these loans – in some cases only when this non-compliance is not remedied within a set time period – and the occurrence of other events, such as cross-default events, some of which are subject to specific threshold values, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan.

Bonds, with a nominal value of €7.6 billion, refer to securities issued under the Euro Medium Term Notes programme. The covenants set for the programme’s securities reflect international market practices and relate, inter alia, to negative pledge and pari passu clauses. Specifically, under the negative pledge clause, Snam and its significant subsidiaries are subject to limitations in relation to the creation or maintenance of restrictions on all or part of their own assets or inflows to guarantee present or future debt, unless this is explicitly permitted.

Failure to comply with these covenants – in some cases only when this non-compliance is not remedied within a set time period – and the occurrence of other events, such as cross-default events, some of which are subject to specific threshold values, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan.

As at 31 December 2016, there were no identified events resulting in failure to comply with the aforementioned commitments and covenants.

Breakdown of net financial debt

The breakdown of net financial debt, showing related-party transactions, is provided in the following table: