UPDATE: Delta Air Plans $500 Million Debt Offering
September 16 2009 - 12:44PM
Dow Jones News
Delta Air Lines Inc. (DAL) is looking to sell $500 million of
five-year senior secured bonds later this month, the company said
Wednesday.
The bond sale marks a rare step into the high-yield market for
the airline. However, it completed its merger with Northwest less
than a year ago and has repeatedly said that it could look to
refinance debt once the carriers became a single entity. Proceeds
from the bond sale will refinance Northwest Airlines' bank
loans.
In a statement, Delta said it is also planning a new senior
credit facility, and plans to use its Pacific route authorities,
slots and gate leases to secure the new bonds. The Pacific assets
will also stand as collateral for Delta's new loan. Delta didn't
specify the size of the new loan facility, and Betsy Talton, a
spokeswoman for the airline, declined to give further details
outside of the statement.
The new bonds and loan comes as Delta and other airlines are in
talks about making a multi-million-dollar investment in Japan
Airlines Corp. (JALSY).
JPMorgan Chase & Co. (JPM), Barclays Capital (BCS) and UBS
AG (UBS) are leading the bond sale, according to a person familiar
with the deal. A road show for the bonds is scheduled to run from
Sept. 17 to Sept. 23 inclusive and pricing is expected to follow
the completion of marketing, the person added.
Pinched capital lending has remained an issue for airlines
trying to maintain or build cash balances as they continue to burn
cash amid a prolonged industry slump.
Delta became the biggest U.S. carrier, including in Asia,
following its acquisition of Northwest and is in early talks to
acquire a minority stake in money-losing but strategically
important Japan Airlines.
Both Delta and American Airlines parent AMR Corp. (AMR) have
been in separate talks with Japan Airlines in recent weeks to build
stronger ties and potentially invest hundreds of millions of
dollars in the unprofitable airline, Dow Jones Newswires reported
Tuesday. The president of Japan Airlines said the carrier aims to
conclude tie-up talks with foreign carriers by mid October.
Delta has more than $5 billion in debt coming due through the
end of 2011 and, without looser credit markets and an improved
operating environment, it is unlikely to be able to maintain its
liquidity levels, Fitch Ratings said early this summer.
Northwest's term debt, which earlier this year totaled $904
million, according to Standard & Poor's LCD unit, matures on
Dec. 31, 2010, or the date at which Northwest is no longer a
separate legal entity. Northwest also has two revolving credit
facilities - a three-year facility totaling $200 million and a $300
million, 364-day facility - which were undrawn as of June 30,
according to LCD.
Delta fully drew its revolving credit in advance of the merger
with Northwest. Delta has a $1.6 billion first-lien revolving
credit and a $900 million second-lien term loan, according to LCD
data. This was arranged by JPMorgan Chase & Co., Goldman Sachs,
Merrill Lynch, Lehman Brothers, UBS and Barclays Capital when Delta
emerged from bankruptcy at the end of April 2007.
Under terms of the merger, Northwest shareholders received 1.25
Delta shares for each Northwest share. The combined entity is
headquartered in Atlanta.
Delta's shares recently were up 4.14% at $9.62. The stock is up
about 26% this month, though it is down by 20% this year.
-By Kate Haywood, Dow Jones Newswires; 212-416-2218;
kate.haywood@dowjones.com
(Tess Stynes contributed to this article.)