Dépêches

Fitch Rates Delta's Secured Bank Credit Facilities 'BB-/RR1'

Dépèche transmise le 8 avril 2011 par Business Wire

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'BB-/RR1' to Delta Air Lines, Inc.'s (Delta) planned $1.225 billion first lien secured revolving credit facility maturing in 2016 and its $1.375 billion first lien secured term loan due 2017. The new facilities have been arranged to refinance the airline's $2.5 billion in exit facilities, scheduled for maturity in 2012 and 2014. Delta's Issuer Default Rating (IDR) is 'B-'. The Rating Outlook is Stable.

The collateral package for the new facilities consists of a diverse set of assets that currently secure the exit facilities. These assets include aircraft, domestic slots, international route authorities, accounts receivable, flight simulators, engines, spare parts and real estate. Lenders' first lien recovery prospects are supported by a minimum collateral coverage covenant. Recovery expectations for lenders are outstanding, reflecting Fitch's opinion that recovery rates would likely exceed 90% of principal in a default scenario.

Delta's plan to reduce adjusted net debt by approximately $7 billion over the next two years, principally through strongly positive free cash flow generation, has been delayed as a result of the sharp run-up in crude oil and jet fuel prices during the first quarter. While Delta has approximately 38% of expected 2011 fuel consumption hedged at an average jet fuel price cap of $2.84 per gallon, it is facing significant unit cost pressure that will erode earnings and cash flow. To a large extent, Delta's ability to deliver solid free cash flow and strongly positive revenue per available seat mile (RASM) growth later in the year will depend on the industry's ability to continue passing on higher fuel costs in the form of fare increases. Year to date, at least six domestic fare hikes have succeeded, helping to boost Delta's projected first quarter (1Q) RASM growth to between 7%-8%.

Delta has taken numerous steps to limit the impact of higher jet fuel prices, including capacity reduction that will be reflected primarily in schedules after the summer. In addition to near-term adjustments to Japan capacity (down by between 15%-20% through at least May), the carrier has trimmed its system capacity by four percentage points in the second half of the year.

Fitch remains focused on Delta's ability to manage the more difficult 2011 industry operating environment by calibrating capacity, retiring less fuel-efficient aircraft and keeping capex to a modest level in the range of $1.3 billion per year. Significant progress toward substantially positive free cash flow generation and debt reduction in 2011 could lead to a revision in the Rating Outlook to Positive or an upgrade in Delta's IDR to 'B'.

Fitch maintains the following issue ratings on Delta's secured borrowings.

Senior Secured Bank Credit Facilities:

--$1.225 billion senior secured revolving credit facility due 2016 'BB-/RR1';

--$1.375 billion senior secured term loan due 2017 'BB-/RR1';

--$500 million revolving credit facility (Pacific routes) due 2013 'BB-/RR1';

--$750 million senior secured first lien notes due 2014 'BB-/RR1';

--$600 million senior second lien notes due 2015 'B-/RR4'.

After proceeds from the new bank loans are used to pay down the exit facilities, the following issue ratings will be withdrawn.

Senior Secured Bank Credit Facilities:

--$1 billion (original amount) revolving credit facility due 2012 'BB-/RR1';

--$600 million (original) first lien synthetic credit facility due 2012 'BB-/RR1';

--$900 million (original) second lien term loan due 2014 'B-/RR4'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--Corporate Finance Rating Criteria Hierarchy (Interactive Compendium of Criteria Reports) (Dec. 20, 2010);

--Evaluating Corporate Governance (Dec. 16, 2010);

--Corporate Rating Methodology (Aug. 13, 2010);

--Analysis of U.S. Corporate Pensions (Dec. 1, 2010);

--Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers (Nov. 24, 2009).

Applicable Criteria and Related Research:

Corporate Finance Rating Criteria Hierarchy (Interactive Compendium of Criteria Reports)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=520046

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Analysis of U.S. Corporate Pensions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365

Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489006

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