NWstu

Trying to get improve cash flow by paying off some current obligations with new debt maturing in the future. At least Delta's in a better cash position currently than most of the legacy airlines.

Not sure that one analyst's firm's position is that airlines are turning the corner financially is accurate. It's going to be a long, cold winter.


Linkage

TheMoose

Interesting to note that the offerings will be secured by "Delta's Pacific route authorities, slots and gate leaseholds. Those assets will also constitute the collateral for the company's new senior secured credit facilities, Delta said."

Thanks, NWA!

fti

The pacific routes can't be worth much. Remember, DL took over NW because NW was hurting so much, and begged DL to take them over. That is what I read here on the forum, anyway.

MikeMpls

Sounds like a routine transaction that most businesses would want to make under the circumstances: Debt comes due, debt rolled over into new loans. The actual amounts, credit ratings & interest rates would have been interesting, but the article was pretty superficial & didn't dig into that.

More interesting is what kind of investor would take a chance on a company that reported a quarter-billion-dollar loss ($257M) 2nd quarter and expects to see its cash balance shrink by another $800M by the end of the year?

The collateral will be "Delta's Pacific route authorities, slots and gate leaseholds". If Delta falters & the upcoming open-skies agreement with Japan becomes a reality, there will be supply of slots & gates on the market.

sbm12

I'm not entirely sure about this part. Even with Open Skies between Europe and the USA slots were hard to get at LHR and are still considered to be a premium value. I'm betting that all the NW NRT slots have similar fungability.

MikeMpls

But in that case, why would anyone accept them as collateral?

raehl311

Who invests in an airline period? Especially a legacy carrier?

They ALWAYS lose money.

PMMMDL

The old NW debt that is being paid off by this newly issued debt was secured by these same assets.

3Cforme

It's not the first time the NW Japan authorities and gates have been hocked, but some have very short and very selective memories.

http://www.redorbit.com/news/technol...finance_deals/

FLLDL

This is correct, since emerging from bankruptcy NWA's secured bank credit facility has been secured using the NRT route authorities as collateral. As far as who would take a risk in lending to DAL, I think we can assume that the value of the assets in hock exceeds the value of the credit line by a safe margin, limiting the lenders exposure. I agree that investing in airline equities is insane, but debt is a different ball game


As MikeMpls said, really just a routine corporate finance transaction.

GUWonder

Big lenders have a rather recent history of having a very poor understanding of what is a "safe margin" so as to be able to absorb an asset becoming a non-performing asset. Remember the US government bailouts of banks and other big players in the debt market? It wasn't that long ago and that was also a product of "safe margin" being far more risky than they understood or cared to acknowledge.

Well stated. Given that longer term interest rates for dollar-denominated debt will be rising in the years ahead, it seems to be a reasonable attempt by DL. I just wouldn't want to be in the pool of investors buying up DL's debt.

socrates

GE & UTC, Airbus & Boeing, Unions, AMEX and the US Government...all of the smart investors run for the hills when their caller ID says XXXX Airlines

PMMMDL

There is a very big long term difference in return between investing in the equities and investing in the secured debt of airlines.

Lots of long term profits have been made investing in the secured debts of airlines, aggragate net losses in equities investing in the industry.

sxf24

The secured debt of airlines tends to have a very, very good return.

sbm12

Specifically because of that case - they have high value and are easily converted to cash if the lender defaults.