Business Context and Reporting Period
This Form 8-K filing by Delta Air Lines, Inc. (Delta) reports on material definitive agreements entered into on April 16, 2018, and completed on April 19, 2018. The filing details a significant refinancing of the company's debt structure, involving the issuance of new unsecured notes and the establishment of a new unsecured revolving credit facility.
Key Financial Metrics and Capital Structure
Debt Issuance
Delta completed a public offering of $1.6 billion in aggregate principal amount of unsecured notes, structured as follows:
- 2021 Notes: $600 million at 3.400% interest.
- 2023 Notes: $500 million at 3.800% interest.
- 2028 Notes: $500 million at 4.375% interest.
Interest is payable semi-annually in arrears, commencing October 19, 2018. The notes rank pari passu with other unsubordinated indebtedness.
Revolving Credit Facility
Delta entered into a new $2.65 billion unsecured revolving credit facility, split evenly into a three-year and a five-year tranche. Up to $500 million is available for letters of credit. The facility was undrawn at inception and replaced previous secured facilities.
Liquidity and Covenants
The new Revolving Credit Facility requires Delta to maintain specific financial ratios:
- Minimum Fixed Charge Coverage Ratio: 1.20:1
- Asset Coverage Ratio: 1.25:1
Material Changes and Use of Proceeds
The primary material change is the shift from secured term loans to unsecured debt instruments. Delta intends to use the net proceeds from the $1.6 billion note offering to repay borrowings outstanding under its secured Pacific term loan B-1 facility and 2015 term loan facility. The remaining proceeds will be used for general corporate purposes. Concurrently, the company terminated its secured Pacific Revolving Credit Facility and 2015 Revolving Credit Facility.
Outlook, Risks, and Contingencies
Redemption and Change of Control
Delta retains the option to redeem the notes prior to maturity at applicable redemption prices. A "Change of Control" provision mandates that if Delta undergoes a change of control and the notes are downgraded to below investment grade by two ratings agencies, the company must offer to repurchase the notes at 101% of the principal amount plus accrued interest.
Covenant Risks
The new credit facility imposes affirmative, negative, and financial covenants that restrict the company's ability to place liens on a designated pool of assets. Failure to meet the required coverage ratios or other events of default could result in the acceleration of outstanding obligations.
Investor Verification Checklist
- Verify the exact repayment schedule and amounts applied to the Pacific term loan B-1 and 2015 term loan facilities.
- Confirm the current status of Delta's Fixed Charge Coverage and Asset Coverage ratios against the new 1.20:1 and 1.25:1 thresholds.
- Review the full text of the Third Supplemental Indenture (Exhibit 4.1) for specific definitions of "Change of Control" and redemption pricing schedules.
- Assess the impact of the new unsecured debt structure on Delta's overall leverage and interest expense compared to the previous secured facilities.