Delta reaches minimum for short-term debt in exchange offer

New York, Nov. 2 - Delta Air Lines Inc. said holders have tendered $252 million principal amount of its passthrough certificates series 2000-1C and passthrough certificates series 2001-1C, enough to exceed the minimum tender condition for its short-term debt securities.

But the Atlanta-based airline said the amount so far tendered in the other classes is "substantially below" the minimum required.

If only the short-term piece is completed, the collateral reserved for the other classes of notes will be available to Delta to meet other liquidity needs, the company said.

The exchange runs through 5 p.m. ET on Nov. 18 unless extended.

Delta said on Oct. 14 it had extended its exchange offer for a portion of its unsecured debt securities and enhanced passthrough certificates and amended the terms.

Delta established an early tender deadline of 11:59 p.m. ET on Oct. 26 - there was no such deadline originally - and extended the offer expiration to 5 p.m. ET on Nov. 18 from the original Oct. 14 expiration) with both deadlines subject to possible further extension. There was no announcement after the early tender deadline passed.

Delta, which divided the existing debt securities and passthrough certificates for which it is offering to exchange new debt into three categories - short term, intermediate and long term - and which will correspondingly issue three classes of new debt, further amended the offer by increasing the amount of new notes it will pay to tendering debt holders, and offering stock to certain debt holders to encourage the early tender of their debt.

Delta is increasing to $235 million from $200 million originally the maximum principal amount of new 8% series A-1 senior secured notes due 2008 it will offer the holders of its short-term debt and said that it would exchange $1,000 principal amount of the new notes per $1,000 principal amount of the existing debt tendered by the new early tender deadline and accepted for purchase, up from the originally announced exchange consideration of $750 million of new notes. However, holders tendering existing debt after the early tender deadline would only receive $500 principal amount of new notes for $1,000 principal amount of existing debt.

Delta decreased to $215 million from $230 million originally the maximum principal amount of new 10% series A-2 senior secured notes due 2011 it will offer to holders of its intermediate debt and raised the amount of the new notes it will offer to $450 per $1,000 principal amount of existing debt, up from $400 per $1,000 originally. It also offered to give intermediate debt holders tendering by the early tender deadline $32.97 of Delta stock per $1,000 principal amount of existing debt tendered and accepted for payment.

And it decreased to $230 million from $250 million originally the maximum principal amount of new 12% A-3 senior secured notes due 2014 it will offer to the holders of its long-term debt, and raised the amount of new notes it will offer to $400 per $1,000 principal amount of existing debt, up from $350 per $1,000 originally. It also offered to give intermediate debt holders tendering by the early tender deadline $27.39 of Delta stock per $1,000 principal amount of existing debt tendered and accepted for payment.

Delta said that up to Oct. 13, a total of $24.245 million of the existing short-term debt securities and passthroughs, $18.115 million of the intermediate debt and $49.932 million of the long-term debt had been tendered. Because Delta amended the exchange offer, any existing securities that were tendered on or before Oct. 13 will be returned to the tendering holders, but these may be re-tendered. Tenders of securities made on or after Oct. 14 may not be withdrawn.

Besides previously announced conditions to the offer, Delta said that the offer would also be conditioned upon it having received valid and unwithdrawn tenders of at least 75% of the principal amount of each of the three categories of securities (short term, intermediate and long term) for which it is offering to exchange new debt and stock; on the New York Stock Exchange having approved Delta's application for an exception to the stockholder approval requirement for the issuance of equity in connection with the restructuring; and Delta having entered into a new contract with the Air Line Pilots Association International that has been ratified by the ALPA membership and that provides, in Delta's judgment, at least $1 billion of annual cost reduction by 2006 (before employee reward programs). Unlike the other conditions of the offer, the latter condition may not be waived by Delta.

As previously announced, Delta, an Atlanta-based airline carrier, said on Sept. 15 that it had begun an exchange offer for a portion of $2.6 billion of unsecured debt securities and enhanced passthrough certificates. Delta said it would offer qualified institutional buyers holding such securities and passthroughs (and only such holders) up to $680 million of new senior secured notes, in hopes of getting up to $1.56 billion principal amount of the existing debt in exchange, as part of its efforts to restructure its debt out of court.

The airline said the new notes would be secured by a pool of collateral consisting of some unencumbered aircraft, flight simulators and flight training equipment with a total appraised current market value of $1.3 billion.

The A-1 notes will amortize beginning in 2006, the A-2 notes beginning in 2009 and the A-3 notes beginning in 2012.

Delta said the exchange would be subject to conditions including:

* Delta having decided that there are anticipated annual cost savings sufficient for it to achieve financial viability by way of an out-of-court restructuring, including reduction of pilot costs (before employee reward programs) of at least $1 billion annually by 2006 and reduction of other costs of at least $1.7 billion annually by 2006 (in addition to the $2.3 billion of annual cash savings compared to 2002 expected to be achieved by the end of 2004 through previously implemented profit improvement initiatives); and

* No adverse legal and market developments.

Delta also originally said the offer would be subject to its having decided that it is advisable to consummate the exchange offer as part of a successful out-of-court restructuring; and on it having received tenders of enough existing securities to result in the issuance of at least $612 million of new notes, but it subsequently dropped such language from the notice of the amended offer.

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