[ad_1]
By Aaron Weinman
NEW YORK, Sep 15 (LPC) – US airline Delta Air Lines and bankrupt Colombian counterpart Avianca are raising at least US $ 4.5 billion in the US leveraged loan market this month, offering solid guarantees and attractive returns for investors as opportunities to make money work remain limited.
This week, Delta launched US $ 2.5 billion in funding secured through its SkyMiles loyalty program. Earlier in September, Avianca closed an 18-month, two-part, US $ 2 billion term loan at an eye-catching 11.5% yield, according to bankers familiar with the transactions.
Airlines in the Americas have amassed billions of US dollars in cash this year to stay in the air and withstand the economic pressure caused by the coronavirus pandemic, which has decimated demand for air travel. U.S. carriers have tapped investors in bonds and loans to bolster their cash reserves, while Latin American airlines, such as Avianca, Aeromexico and Chilean company LATAM Airlines, have sought to restructure their debt through through bankruptcy proceedings.
Delta’s new deal comes five months after the airline raised $ 1.5 billion in three-year debt from U.S. investors on loans in April. Also since April, Delta, along with US international carriers United Airlines and American Airlines, has raised US $ 12 billion in the high-yield bond and loan markets, according to data from Refinitiv, taking advantage of favorable credit markets for investors. borrowers backed by the US Federal Reserve. bond buying initiative.
Investors, too, are piling up transactions with juicy coupons, security packages and higher credit scores that can improve managers’ loan portfolios.
“There is still not a lot of new money in the loan market, so this is a chance for Delta to recoup the cash available from investors,” said Michael Marzouk, general manager of bank lending strategies at Pacific Asset Management. “And with investment grade ratings, Collateralized Loan Obligations (CLOs) are going to swallow that up.”
Spokesmen for Delta and Avianca were not immediately available for comment.
STICKY CASH FLOW
SkyMiles’ new US $ 2.5 billion loan to Delta is raised alongside US $ 4 billion in high yield bonds. The two senior debt tranches are rated Baa1 by Moody’s Investors Service, two notches above Delta’s Baa3 rating.
As part of the deal, SkyMiles assets will be housed in a special purpose vehicle, which would secure the loyalty program away from Delta if the airline were to seek Chapter 11 bankruptcy protection. Travel remains low, SkyMiles’ cash flow is expected to be sufficient to cover the airline’s debt owed in part to revenue from credit card use, according to Jonathan Root, senior vice president at Moody’s.
“If something goes wrong, these programs can service the debt and there should be no disruption in cash flow,” Root said. “(SkyMiles) connects the airline with its customers and fosters customer loyalty that contributes significantly to cash flow. “
SkyMiles generates part of its funds by selling airline miles to third parties such as the credit card provider American Express at a higher cost.
In June, United Airlines carried out a similar exercise by raising a US $ 3 billion loan guaranteed by its MileagePlus loyalty program. The term loan was listed between 100.5 and 101.5 cents to the dollar on Tuesday, according to an asset manager.
Investors, for their part, benefited from a strong recovery in yield. The investment grade loan backed by SkyMiles is offered between 425 and 450 bps against Libor, according to a banker familiar with the matter. This month, the average spread on a Double B rated term loan was only 340 bps, while Single B rated loans offered an average drawn spread of 470 bps against Libor, according to data from Refinitiv LPC.
Lenders have until noon Wednesday to commit to the terms of Delta’s new loan.
Avianca, on the other hand, completed its debtor-in-use term loan (DIP) at a spot price of 1,050 bps above Libor, a second banker said. There was also a payment in kind option for the DIP loan which was purchased at 1200bp against Libor.
Given its Caa1 rating from Moody’s, the investor pool was smaller for Avianca’s term loan because portfolio managers can only take on limited portions of Triple C debt, the second banker said. However, Avianca said in an August 30 press release prior to closing the deal that she was “very pleased with the positive reception” from third-party institutional investors.
Barclays is running the deal for Delta. Goldman Sachs and JP Morgan arranged the financing for Avianca.
Bank spokespersons declined to comment.
(Reporting by Aaron Weinman. Editing by Michelle Sierra and Kristen Haunss.)
[ad_2]
