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Item 1.01
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Entry into a Material Definitive Agreement.
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On
September 23, 2020, Delta Air Lines, Inc. (“Delta”) and SkyMiles IP Ltd., a newly formed exempted company incorporated
with limited liability under the laws of the Cayman Islands and an indirect wholly-owned subsidiary of Delta (“SMIP”
and together with Delta, the “Issuers”), completed the previously announced private offering of an aggregate of $2.5
billion principal amount of 4.500% senior secured notes due 2025 (the “2025 Notes”) and an aggregate of $3.5 billion
principal amount of 4.750% senior secured notes due 2028 (the “2028 Notes,” together with the 2025 Notes, the “Notes”).
The Notes are guaranteed by SkyMiles Holdings Ltd. (“SMHL”), SkyMiles IP Holdings Ltd. (“SMIH”) and SkyMiles
IP Finance Ltd. (“SMIF” and together with SMHL and SMIH, the “Guarantors”), each of which are newly formed
exempted companies incorporated with limited liability under the laws of the Cayman Islands and direct or indirect wholly-owned
subsidiaries of Delta. The Notes were issued pursuant to an indenture, dated as of September 23, 2020, among Delta, SMIP,
the Guarantors and U.S. Bank National Association, as trustee (the “Indenture”). Concurrently with
the issuance of the Notes, Delta and SMIP, as co-borrowers, and the Guarantors entered into a credit agreement with Barclays Bank
PLC, as administrative agent, U.S. Bank National Association, as collateral administrator, and the lenders party thereto, pursuant
to which Delta and SMIP borrowed an aggregate principal amount of $3.0 billion (the “New Credit Facility,” and collectively
with the Notes, the “SkyMiles Financing”).
Subject to certain permitted
liens and other exceptions, the Notes, note guarantees and the loans under the New Credit Facility will be secured by first-priority
security interests in, and pledge of, the SkyMiles Agreements (as defined in the Indenture and the New Credit Facility) (including
all payments thereunder) and rights under certain intercompany agreements, including the IP Licenses (as defined below), certain
rights under the SkyMiles program (as defined in the Indenture and the New Credit Facility), certain deposit accounts that receive
revenue under SkyMiles Agreements, the equity of SMIP and substantially all other assets of SMIF and SMIP.
The
Notes, the note guarantees and the loans under the New Credit Facility (i)
rank equally in right of payment with all of the Issuers’ and the Guarantors’ existing and future senior indebtedness,
(ii) are effectively senior to all existing and future indebtedness of the Issuers and the Guarantors that is not secured by a
lien, or is secured by a junior-priority lien, on the collateral, to the extent of the value of the collateral, (iii) are effectively
subordinated to any existing or future indebtedness of the Issuers and the Guarantors that is secured by liens on assets that do
not constitute a part of the collateral to the extent of the value of such assets and (iv) rank senior in right of payment to the
Issuers’ and the Guarantors’ future subordinated indebtedness. The Notes, the note guarantees and the loans under
the New Credit Facility will also be structurally subordinated
to all existing and future obligations, including trade payables, of Delta’s subsidiaries, other than SMIP and the Guarantors.
Payment
Terms of the Notes and Loans under the New Credit Facility
The
2025 Notes bear interest at a rate of 4.500% per annum and will mature on October 20, 2025. The 2028 Notes bear interest at a rate
of 4.750% per annum and will mature on October 20, 2028. Interest on the Notes is payable in quarterly installments on January
20, April 20, July 20 and October 20 of each year, beginning January 20, 2021 (each a “Payment Date”). The principal
on the 2025 Notes will be repaid in quarterly installments of 1/12 of the aggregate principal amount of the 2025 Notes, or approximately
$208.333 million, on each Payment Date beginning with the Payment Date in January 2023. The principal on the 2028 Notes will be
repaid in quarterly installments of 1/12 of the aggregate principal amount of the 2028 Notes, or approximately $291.667 million,
on each Payment Date beginning with the Payment Date in January 2026.
The
scheduled maturity date of the New Credit Facility is October 20, 2027. Loans outstanding under the New Credit Facility bear interest
at a variable rate equal to LIBOR (but not less than 1.0% per annum), plus a margin of 3.75% per annum, payable on each Payment
Date. The principal on loans outstanding under the New Credit Facility will be repaid in quarterly installments of 5.0% of the
aggregate principal amount of the New Credit Facility, or $150.0 million, on each Payment Date beginning with the Payment Date
in January 2023. These amortization payments (as well as those for the Notes) will be subject to the occurrence of certain early
amortization events, including the failure to satisfy a minimum debt service coverage ratio at specified determination dates.
The
Indenture and the New Credit Facility contain mandatory prepayment provisions triggered upon (i) the issuance or incurrence by
SMIP or the Guarantors of certain indebtedness or (ii) the receipt by Delta or its subsidiaries of net proceeds from pre-paid mile
purchases exceeding $505.0 million, with prepayment required only in respect of net proceeds from such purchases exceeding $500.0
million. Each of these prepayments would also require payment of an applicable premium. Certain other events, including a Parent
Change of Control Triggering Event (as defined in the Indenture and the New Credit Facility) and certain collateral sales exceeding
a specified threshold, will also trigger mandatory repurchase or mandatory prepayment provisions under the Indenture and the New
Credit Facility, respectively. Optional redemption or prepayment of some or all of the Notes or loans outstanding under the New
Credit Facility is also permitted, although payment of an applicable premium is required where specified in the Indenture and New
Credit Facility.
Other Terms of the Notes and Loans
under the New Credit Facility
The
Indenture and the New Credit Facility contain certain covenants that limit the ability of SMIP, the Guarantors and, in certain
circumstances, Delta to, among other things, (i) incur additional indebtedness, (ii) incur certain liens on the collateral, (iii)
merge, consolidate or sell substantially all of their assets, (iv) dispose of the collateral, (v) sell pre-paid miles in excess
of $550.0 million in the aggregate, and (vi) terminate, amend, waive, supplement or modify the IP Licenses, or exercise rights
and remedies thereunder, except under certain circumstances. The Indenture and the New Credit Facility also contain covenants that
limit the ability of SMIP and the Guarantors to make restricted payments and engage in certain business activities.
Delta and SMIP are also prohibited from substantially reducing the SkyMiles program business
or modifying the terms of the SkyMiles program in a manner that would reasonably be expected to materially impair repayment of
the SkyMiles Financing obligations (described as a “Payment Material Adverse Effect” in the Indenture and the New Credit
Facility), and Delta and its subsidiaries are prohibited from changing the policies and procedures of the SkyMiles program in a
manner that would reasonably be expected to have a Payment Material Adverse Effect or operating a competing loyalty program. Notwithstanding
these restrictions, the SkyMiles program will operate as it has in the past, and the entry into the SkyMiles Financing will not
have any impact on the benefits offered to SkyMiles members.
In
addition, subject to certain exceptions, the Indenture and the New Credit Facility restrict the ability of Delta, SMIP or
any Guarantor to terminate, or modify certain terms within, the intercompany agreement governing the relationship between Delta
and SMIP with respect to the SkyMiles program.
The
Indenture and the New Credit Facility also require Delta and SMIP to comply with certain affirmative covenants, including (i) certain
reporting requirements and (ii) the use of commercially reasonable efforts to cause sufficient counterparties to SkyMiles Agreements
to direct payments of Transaction Revenues (as defined in the Indenture and the New Credit Facility) into a collections account,
such that at least 90% of SkyMiles Revenues in a quarterly reporting period are deposited directly into such account, with amounts
to be distributed from such account for the payment of fees, principal and interest on the Notes and the loans outstanding under
the New Credit Facility pursuant to a payment waterfall described in the Indenture and New Credit Agreement, respectively. In addition,
the Indenture and the New Credit Facility require Delta to maintain minimum liquidity, defined as the sum of (a) unrestricted cash
and cash equivalents and (b) the aggregate principal amount committed and available to be drawn under all of Delta’s
revolving credit facilities, at the close of any business day of at least $2.0 billion.
Subject to certain materiality thresholds,
qualifications, exceptions, “baskets” and grace and cure periods, the Indenture and the New Credit Facility contain
various events of default, including payment defaults, covenant defaults, cross-defaults to certain indebtedness, termination of
certain agreements related to the SkyMiles program, bankruptcy events of SMIP or any Guarantor, and a change of control of SMIP
or any Guarantor. A bankruptcy event of Delta is not itself an event of default; following a Delta bankruptcy, an event of default
would only occur if Delta failed to satisfy certain enumerated bankruptcy case milestones (as described in the Indenture and the
New Credit Facility). Upon the occurrence of an event of default, the outstanding obligations under the Indenture and the New Credit
Facility may (or, with respect to the bankruptcy events noted above, shall) be accelerated and become due and payable immediately.
Terms of Certain
Intercompany Agreements Related to the SkyMiles Financing
In connection with the
issuance of the Notes and entry into the New Credit Facility, Delta,
SMIP and the Guarantors entered into a series of transactions that resulted in the transfer to SMIP of, among other things, Delta’s
rights to certain data and other intellectual property used in the SkyMiles program (subject to certain exceptions) (such assets,
the “Transferred SkyMiles IP”). SMIP has entered into a license agreement with SMIF pursuant to which SMIP has granted
to SMIF an exclusive, irrevocable (subject to certain termination rights), perpetual, worldwide, royalty-bearing license to use
the Transferred SkyMiles IP (the “SMIF License”), and SMIF has in turn granted to Delta an exclusive, irrevocable
(subject to certain termination rights), perpetual, worldwide, royalty-bearing sublicense to use the Transferred SkyMiles IP (together
with the SMIF License, the “IP Licenses”). The IP Licenses would be terminated,
and Delta’s right to use the Transferred SkyMiles IP would cease, upon specified termination events, including, but not
limited to, the occurrence of an event of default under the Indenture or the New Credit Facility. In certain circumstances, such
a termination would trigger a liquidated damages payment in an amount that is greater than the initial principal amount of the
Notes and the loans under the New Credit Facility.
The descriptions of the arrangements above
are summaries only, and the summaries of the Notes, the Indenture and the New Credit Facility are qualified in their entirety by
reference to the full text of such documents. Any representations and warranties of a party set forth in such documents have been
made solely for the benefit of the other parties thereto. Such representations and warranties were made only as of the date thereof
or such other date as specified in such document, may be subject to a contractual standard of materiality different from what may
be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties rather than
establishing matters as facts.