GE Commercial Finance is providing $1.7 billion debtor-in-possession loans to Delta Air Lines, which entered Chapter 11 bankruptcy protection Sept. 14. The DIP will refinance about $630 million of financing provided by GE and $500 million of financing provided by American Express in November 2004. American Express has also agreed to provide the airline with an additional $350 million of secured financing, which will be secured by liens junior to the DIP.
The deal includes a $600 million term loan "A" priced at LIBOR plus 5%, a $600 million term loan "B" priced at LIBOR plus 7% and a $500 million term loan "C" priced at LIBOR plus 9%. Morgan Stanley is a co-arranger on the term loan "C." The facility has a term of 30 months. All tranches of the DIP will be pari-passu, although payment priorities are governed by a waterfall. The DIP is secured by a super-priority lien on all unencumbered assets of the company including unrestricted cash, certain aircraft, real estate, spare parts and others.
A Delta spokeswoman said the company has not set a timeframe for an exit from bankruptcy, but did unveil a transformation plan last September, with which it plans to continue. Although the airline has not released specific details regarding the plans, in the past year it has cut unit costs by 14.3%, excluding fuel; has achieved 85% of a $5 billion cost-cut it set for the time period ending 2006; has introduced 21 international routes, and is in the process of reducing its fleet by four aircraft types. By the end of 2005 it will have eliminated the Boeing 767-200 and the Boeing 737-200 aircrafts from its portfolio. Domestically, Delta recently announced it is going to cut 26% of its flights from Cincinnati, Ohio, its second largest hub.
Standard & Poor's lowered Delta's CC corporate rating and ratings on unsecured debt and airport revenue bonds to D last Thursday and removed the ratings from Credit Watch following the filing. It writes in its report that the bankruptcy was caused by a combination of high fuel costs, pricing pressures and a heavy debt and pension burden. The surge in fuel prices following Hurricane Katrina helped push the company into bankruptcy.