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Delta to borrow $9 billion in largest airline debt deal ever

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Delta Air Lines Inc. is raising $9 billion in the industry’s largest debt deal ever, tapping into investors’ rampant demand for yield while seeking to survive a slowdown that’s causing it to burn through $27 million a day.

The bonds, secured by Delta’s frequent-flier program, carry high-grade ratings, but some may yield as much as 4.875%, according people with knowledge of the matter. That’s more than double the average 2.31% yield on the lowest-rated unsecured investment-grade bonds, even with a higher duration, according to a Bloomberg Barclays index.

The prospective payout is so alluring to investors that they’ve placed three times as many orders as bonds and loans available for sale. That allowed Delta to boost the size of the deal from an original $6.5 billion -- which the company said already would’ve been enough to rule out the need for additional federal aid.

According to sources speaking on background, the $3 billion loan portion of the transaction (which had been upsized from $2.5 billion) priced at at original issuer discount of 99 cents on the dollar, with a coupon spread of Libor plus 375 basis points. That tightened from a initial price talk range of 425-450 basis points over Libor. The 1% Libor floor remains unchanged.

The carrier is taking advantage of a wide-open market for corporate debt that’s seen both record supply and demand spurred by an accommodative Federal Reserve. Boeing Co. similarly said it wouldn’t seek government funding after borrowing $25 billion in April in the year’s largest bond sale.

Investor Interest
As of Wednesday morning, investors had placed about $16 billion of orders for the bonds and around $10 billion for the loan, the people said, who asked not to be identified as the details are private. The $2.5 billion of five-year bonds may yield between 4.5% and 4.625%, while the $3.5 billion eight-year portion is being marketed around 4.75% to 4.875%, the people said.

Commitments on the $3 billion of loans have been accelerated to Wednesday, which is also when the bonds are expected to price.

Representatives for Goldman Sachs Group Inc., which is lead manager on the bond sale, and Barclays Plc, which is leading the loan, declined to comment. A representative for Delta also declined to comment.

At $9 billion, Delta’s transaction would be the largest ever for a commercial carrier. United Airlines Holdings Inc. previously set that record with a $6.8 billion sale of bonds and loans in June, inspiring peers to similarly pledge their miles rewards programs as collateral.

The debt will help boost Delta’s liquidity as passenger volumes are only 30% of what they were this time last year, according to a memo by Chief Executive Officer Ed Bastian on Tuesday. Proceeds could also be used to help repay a $3 billion term loan due in March, as well as a revolving credit facility of the same amount, according to Moody’s Investors Service.

Bloomberg News
Corporate finance Leveraged loans ABS
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