The government of Abu Dhabi is looking at proposals to restructure some USD1.2bn of troubled bonds that were issued by Abu Dhabi state-owned carrier Etihad Airways in partnership with other airlines, sources familiar with the matter said. Etihad issued USD700mn of bonds through a special purpose vehicle (SPV) called Equity Alliance Partners (EAP) in 2015, and USD500mn in 2016. Proceeds of the paper went to Etihad and other airlines it partially owned at the time, including Alitalia and Air Berlin, which are now both insolvent. The EAP bonds have been trading at a significant discount for over a year, however, after Alitalia entered special administration and Air Berlin filed for bankruptcy. Etihad has no legal responsibility to bail out the portion of the bonds which benefited the two European airlines as the notes have no cross-default provision. But with over USD500mn of the paper held by UAE investors, it has asked the Abu Dhabi Department of Finance to find a way to reduce losses for investors and limit any damage to the reputation of the local debt market, sources familiar with the matter said.