Delta Upsizes Loyalty Program-Backed Debt Deal To $9B

Delta Air Lines has upsized its previously announced $6.5 billion private debt offering backed by its SkyMiles program to $9 billion due to strong demand as cited by Bloomberg. The offering marks the largest debt deal ever in the airline industry, which is struggling to survive due to travel restrictions amid the pandemic.

On Sept. 17, Delta (DAL) announced that it will issue $2.5 billion of 4.5% senior secured notes due 2025 and $3.5 billion of 4.75% senior secured notes due 2028. The carrier expects to issue these notes on Sept. 23, 2020. Delta and its subsidiary SkyMiles IP Ltd. will also enter into a credit agreement for a $3 billion term loan facility.

Last week, Delta disclosed that while it is eligible for a $4.6 billion federal loan under the CARES (Coronavirus Aid, Relief, and Economic Security) Act, it is not keen to avail this loan.

The pandemic has crushed airlines and is causing losses in billions of dollars. Delta expects the September system capacity to be down about 60% Y/Y, with the international capacity to be reduced 80% and domestic capacity down 50%. Due to reduced demand, the airline has parked about 40% of its mainline fleet, including the permanent retirement of certain aircraft.

The federal aid under the CARES Act expires on Sept. 30. Major airline CEOs met with White House chief of staff Mark Meadows on Sept.17, for a last-minute attempt to appeal for more coronavirus aid to prevent massive job cuts. (See DAL stock analysis on TipRanks)

On Sept. 18, Barclays analyst Brandon Oglenski increased Delta’s price target to $30 from $26 while maintaining a Hold rating. In a research note to investors, the analyst explained that sufficient capital means airlines “will fight tomorrow,” but lower business demand and reduced profitability leaves valuations “stretched” into 2021.

The analyst further noted that airline equities remain one of the last segments of the market still below pre-pandemic share prices, driving recent value investor interest. However, Oglenski points out that the revenue recovery will take time.

Overall, 6 buys, 4 Holds and no Sell Ratings add up to a Moderate Buy consensus for Delta. The stock has plunged 43.8% year-to-date but the average analyst price target of $37.86 reflects that a possible upside of 15.3% lies ahead.  

Related News:
Boeing 737 MAX Safety Changes Are “Positive Progress” – Report
Southwest Airlines Sees Lower 3Q Cash Burn Amid Signs Of Leisure Travel Recovery
Delta Manages To Avoid Furloughs For Flight Attendants, Employees