DELTA AIR LINES, INC. - 10-Q filing on 2020-10-14

Debt

9 Months Ended

Sep. 30, 2020

DEBT

The following table summarizes our debt as of the dates noted in the table below:


	Maturity			Interest Rate(s) Per Annum at			September 30,		December 31,
(in millions)	Dates			September 30, 2020			2020		2019
Unsecured notes	2020	to	2029	2.60%	to	7.38%	$	5,800	$	5,550
Unsecured CARES Act Payroll Support Program Loan	2030			1.00%			1,648		—
Financing arrangements secured by SkyMiles assets:
SkyMiles Notes⁽¹⁾	2023	to	2028	4.50%	and	4.75%	6,000		—
SkyMiles Term Loan⁽¹⁾⁽²⁾	2023	to	2027	4.75%			3,000		—
Financing arrangements secured by slots, gates and/or routes:
2020 Senior Secured Notes	2025			7.00%			3,500		—
2020 Term Loan⁽¹⁾⁽²⁾	2020	to	2023	5.75%			1,496		—
2018 Revolving Credit Facility⁽²⁾	2021	to	2023	3.75%			2,350		—
2020 Secured Term Loan Facility⁽²⁾	2021			2.39%	to	2.41%	2,950		—
Financing arrangements secured by aircraft:
Certificates⁽¹⁾	2020	to	2028	2.00%	to	8.02%	2,686		1,669
Notes⁽¹⁾⁽²⁾	2020	to	2032	0.84%	to	5.75%	1,068		1,193
NYTDC Special Facilities Revenue Bonds, Series 2020⁽¹⁾	2026	to	2045	4.00%	to	5.00%	1,511		—
NYTDC Special Facilities Revenue Bonds, Series 2018⁽¹⁾	2022	to	2036	4.00%	to	5.00%	1,383		1,383
Other financings^(1)(2)(3)	2020	to	2030	2.51%	to	8.75%	241		196
Other revolving credit facilities⁽²⁾	2021	to	2022	3.35%	to	3.75%	267		—
Total secured and unsecured debt							33,900		9,991
Unamortized (discount)/premium and debt issue cost, net and other							(252)		115
Total debt							33,648		10,106
Less: current maturities							(4,738)		(2,054)
Total long-term debt							$	28,910	$	8,052

⁽¹⁾Due in installments.

⁽²⁾Certain financings are comprised of variable rate debt. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate, in each case plus a specified margin.

⁽³⁾Primarily includes unsecured bonds and debt secured by certain real estate.

2020 Unsecured Notes

In the June 2020 quarter, we issued $1.3 billion in aggregate principal amount of 7.375% unsecured notes due 2026. The unsecured notes are equal in right of payment with our other unsubordinated indebtedness and senior in right of payment to future subordinated debt. The unsecured notes also contain event of default provisions consistent with those in our other recent unsecured debt offerings.

Unsecured CARES Act Payroll Support Program Loan

During the current year, we entered into a promissory note for the $1.6 billion CARES Act payroll support program loan and issued warrants to acquire more than 6.7 million shares of Delta common stock under the program in connection with the promissory note. We have recorded the value of the promissory note and warrants on a relative fair value basis as $1.5 billion of noncurrent debt, net of discount, and $114 million in additional paid in capital, respectively. See Note 2, "Impact of the COVID-19 Pandemic," for further discussion of the terms of the payroll support program loan.

2020 SkyMiles Financing

In September 2020, Delta and SkyMiles IP Ltd. ("SMIP"), a newly formed exempted company incorporated with limited liability under the laws of the Cayman Islands and an indirect wholly-owned subsidiary of Delta, issued $2.5 billion in principal amount of 4.500% senior secured notes due 2025 and $3.5 billion in principal amount of 4.750% senior secured notes due 2028 (collectively, the “SkyMiles Notes”). Concurrently with the issuance of the SkyMiles Notes, Delta and SMIP entered into a term loan credit agreement and borrowed $3.0 billion (the “SkyMiles Term Loan” and together with the SkyMiles Notes, the “SkyMiles Debt”). The SkyMiles Term Loan matures in October 2027 and bears interest at a variable rate equal to LIBOR (but not less than 1.0% per annum), plus a margin of 3.75% per year.

The SkyMiles Debt is guaranteed by three other Delta subsidiaries that are also newly formed exempted companies incorporated with limited liability under the laws of the Cayman Islands, including SkyMiles IP Finance Ltd. ("SMIF"). The SkyMiles Debt is secured by a first-priority security interest in certain of our co-branding, partnering or similar agreements relating to the SkyMiles program (including all payments thereunder), rights under certain intercompany agreements relating to the SkyMiles program, certain rights under our SkyMiles program, certain deposit accounts that receive revenue under our SkyMiles agreements, the equity of SMIP and substantially all other assets of SMIP and SMIF. The assets and credit of SMIP and the Cayman entity guarantors are not available to satisfy obligations, including indebtedness, of Delta or our subsidiaries other than with respect to the SkyMiles Debt and any permissible priority lien or junior lien debt subsequently incurred.

2020 Senior Secured Notes and Term Loan

In the June 2020 quarter, we issued $3.5 billion of senior secured notes and entered into a $1.5 billion term loan secured by certain slots, gates and routes. The senior secured notes bear interest at an annual rate of 7.00% and mature in May 2025. The term loan bears interest at a variable rate equal to LIBOR plus a specified margin and is subject to payments of 1% per year, payable quarterly beginning in September 2020, with the balance due in April 2023.

2018 Revolving Credit Facility

In June 2020, we amended the 2018 revolving credit facility agreement to be secured by our Pacific route authorities and certain related assets. Additionally, the revolving credit facility was amended to extend the maturities of $1.3 billion of the revolver previously due in April 2021 to April 2022 and to include a minimum liquidity covenant, as discussed further below. In October 2020, we repaid the borrowings under the revolving credit facility.

2020 Secured Term Loan Facility

In the March 2020 quarter, we entered into a $2.7 billion 364-day secured term loan facility, and we increased the borrowings thereunder to $3.0 billion in April 2020. Borrowings under this facility were secured by certain aircraft. In October 2020, we repaid all borrowings under, and terminated, this facility.

2020-1 EETC

We completed a $1.0 billion offering of Class AA and A Pass Through Certificates, Series 2020-1 ("2020-1 EETC") utilizing a pass through trust during the March 2020 quarter. The proceeds of this issuance were used to repay unsecured notes that matured in the March 2020 quarter. In the June 2020 quarter, we issued an additional $135 million of Class B certificates. The amounts of all 2020-1 EETC issuances are included in Certificates in the table above. The details of the 2020-1 EETC issuances, which are secured by 33 aircraft, are shown in the table below:

(in millions)

Total Principal

Fixed Interest Rate

Issuance Date

Final Maturity Date

2020-1 Class AA Certificates

796

2.00%

March 2020

June 2028

2020-1 Class A Certificates

204

2.50%

March 2020

June 2028

2020-1 Class B Certificates

135

8.00%

April 2020

June 2027

Total

1,135

2019-1 EETC

In the June 2020 quarter, we issued an additional $108 million of certificates under the 2019-1 EETC offering initially completed in March 2019. The additional certificates were issued as 2019-1 Class B Certificates with a fixed interest rate of 8.00% and mature in April 2023.

NYTDC Special Facilities Revenue Bonds

In September 2020, the NYTDC issued Special Facilities Revenue Bonds, Series 2020 (the "Series 2020 Bonds") in the aggregate principal amount of $1.5 billion. We entered into loan agreements with the NYTDC to use the proceeds from the Series 2020 Bonds to finance a portion of the costs of the construction project that is currently in process at LaGuardia Airport, consisting of the demolition of existing Terminals C and D, the design and construction of new terminal facilities, the payment of capitalized interest on the Series 2020 Bonds and on a portion of the Special Facilities Revenue Bonds, Series 2018, and the payment of costs related to issuance of the Series 2020 Bonds. The proceeds from the Series 2020 Bonds are recorded in cash restricted for airport construction on our balance sheet.

We are required to pay debt service on the Series 2020 Bonds through payments under loan agreements with NYTDC, and we have guaranteed the Series 2020 Bonds.

Availability Under Revolving Facilities

During the March 2020 quarter, we drew $3.0 billion on our revolving credit facilities, of which approximately $400 million was repaid in the September 2020 quarter. The amounts drawn are spread across several lines within the debt summary table above. In addition, we had outstanding letters of credit as of September 30, 2020, including approximately $300 million that reduced the availability under our revolvers and approximately $300 million that did not affect the availability of our revolvers. These activities resulted in approximately $25 million undrawn as of September 30, 2020.

In October 2020, we repaid $2.6 billion in outstanding borrowings under the revolving credit facilities. Following these repayments, we had $2.6 billion undrawn and available under our revolving credit facilities.

Fair Value of Debt

Market risk associated with our fixed- and variable-rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Debt is primarily classified as Level 2 within the fair value hierarchy.


(in millions)	September 30, 2020		December 31, 2019
Net carrying amount	$	33,648	$	10,106
Fair value	$	33,900	$	10,400

Covenants

Our debt agreements contain various affirmative, negative and financial covenants. For example, our credit facilities and our SkyMiles financing agreements, contain, among other things, a minimum liquidity covenant. The minimum liquidity covenant requires Delta to maintain at least $2.0 billion of liquidity (defined as cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities). Certain of our debt agreements also include collateral coverage ratios and limit our ability to (i) incur liens under certain circumstances, (ii) dispose of collateral, (iii) engage in mergers and consolidations or transfer all or substantially all of our assets, and (iv) pay dividends or repurchase our common stock through September 2021. Our SkyMiles financing agreements include a debt service coverage ratio and also restrict our ability to, among other things, (i) modify the terms of the SkyMiles program, or otherwise change the policies and procedures of the SkyMiles program, in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Debt, (ii) sell pre-paid miles in excess of $550 million in the aggregate, and (iii) terminate or materially modify the intercompany arrangements governing the relationship between Delta and SMIP with respect to the SkyMiles program.

Each of these restrictions, however, is subject to important exceptions and qualifications that are set forth in these debt agreements. We were in compliance with the covenants in these debt agreements at September 30, 2020.