Business Context and Reporting Period
This Form 8-K Current Report was filed by Delta Air Lines, Inc. on March 27, 2006. The filing details the execution of an amended and restated Secured Super-Priority Debtor In Possession (DIP) Credit Facility and related amendments to other credit facilities and agreements with General Electric Capital Corporation (GECC) and American Express (Amex). The company is operating as a Debtor in Possession.
Key Financial Metrics and Obligations
- DIP Credit Facility: Total borrowing capacity remains at $1.9 billion, structured into three term loans:
- Term Loan A: $600 million
- Term Loan B: $700 million
- Term Loan C: $600 million
- Interest Rates (Reduced):
- Term Loan A: LIBOR + 2.75% or Index Rate + 2.00%
- Term Loan B: LIBOR + 4.75% or Index Rate + 4.00%
- Term Loan C: LIBOR + 7.50% or Index Rate + 6.75%
- Amex Post-Petition Facility: Fee on outstanding advances reduced to LIBOR + 8.75%.
- Letters of Credit: $403 million issued by GECC supporting $397 million in tax-exempt special facility bonds.
- Future Lease Obligations: Potential aggregate lease payments of $215 million for up to 15 additional CRJ-200 aircraft over a maximum 172-month term.
Material Changes Versus Prior Period
The primary material change is the reduction in interest rates and fees on existing debt obligations without altering the aggregate principal amounts available. Specifically:
- The original DIP Credit Facility (established September 2005, amended October 2005) was replaced in its entirety by the Amended and Restated DIP Credit Facility on March 27, 2006.
- The fee on the Amex Post-Petition Facility was decreased.
- The expiration date for letters of credit under the Reimbursement Agreement was extended from 2008 to 2011.
- The Collateral Value Test in the Reimbursement Agreement was eliminated.
- GECC was granted "put rights" to lease up to 15 additional CRJ-200 aircraft to Delta until March 30, 2007.
Outlook, Risks, and Contingencies
Management Commentary and Outlook: Management believes the lease payments for the potential 15 additional aircraft approximate current market rates. To date, GECC has exercised put rights for three of these aircraft.
Risks and Contingencies:
- Collateral Pool: The credit facilities and Reimbursement Agreement are secured by specific aircraft, Mainline aircraft engines, and substantially all Mainline aircraft spare parts.
- Put Rights: Delta is subject to potential additional lease obligations if GECC exercises its right to lease up to 15 CRJ-200 aircraft, with no more than three scheduled for delivery in the same month.
- Covenants: The facilities remain subject to financial covenants, guarantees, and events of default as described in the company's Form 10-K for the year ended December 31, 2005.
Investor Verification Checklist
- Verify the specific interest rate spreads (LIBOR/Index + margin) for Term Loans A, B, and C in the Amended and Restated DIP Credit Agreement.
- Confirm the status of the "put rights" for the 15 CRJ-200 aircraft and whether GECC has exercised rights beyond the initial three aircraft.
- Review the Form 10-K for the year ended December 31, 2005, to understand the financial covenants and events of default applicable to these facilities.
- Assess the impact of the eliminated Collateral Value Test on the Reimbursement Agreement regarding the $397 million tax-exempt bonds.
- Monitor the intercreditor agreement between the DIP Facility lenders and Amex regarding collateral priorities.