Delta Charts Recovery Course in Record Financing

In the largest single airline bond ever issued, J.P. Morgan leads $3.5 billion financing in market-defining transaction.

June 4, 2020

As part of Delta Air Lines' efforts to improve liquidity in response to the dramatic impacts of COVID-19 on the global airline industry, it was the first U.S. airline to tap the bond market with a $3.5 billion offering.

Investor interest was very strong, driving the size of the bond deal up by $2 billion in a transaction led by J.P. Morgan. “A successful execution was critical at this moment in time to shore up the company’s liquidity and create confidence in the sector,” said Andreas Pierroutsakos, who led the deal team.

Delta’s solid financial foundation following a decade of transformation led the company to become the world’s most profitable airline and largest by revenue last year. This was recognized by investors and supported by J.P Morgan with the firm leading every mission critical round of financing following the airline’s emergence from bankruptcy in 2007. Delta strengthened its relationship with J.P. Morgan during the global financial crisis when Pierroutsakos and his team helped them refinance pre-existing loans. J.P. Morgan’s consistent support through prior challenges made the firm a natural choice to help safeguard Delta’s future during the pandemic.

“We built a relationship based on trust – we knew their financing history inside out and had a clear idea of the products to deploy,” said Pierroutsakos.

Group 7 Created with Sketch. We built a relationship based on trust – we knew their financing history inside out and had a clear idea of the products to deploy. Andreas Pierroutsakos Managing Director, Leveraged Finance J.P. Morgan

At the outset, the J.P. Morgan team suggested a 5-year bond transaction for $1.5 billion and a 3-year term loan for $1.5 billion. Importantly, the firm also offered to provide $525 million worth of capital from its own balance sheet for the 364-day bridge loan secured in March – double that of the next institution involved. As the lead bank, the team launched a marketing campaign to investors and addressed the challenges faced by the company and the industry in the current environment.

“We were able to emphasize the strength of its balance sheet, remaining unencumbered assets, and quality of collateral provided in the transaction,” said Brian Tramontozzi, who helped structure the deal.

Central to this was providing investors clarity on the collateral involved: Delta pledged a diverse pool of valuable time slots and gates in key airports as well as its international routes, particularly to Europe and Latin America. Together these assets represent “crown jewels” of Delta’s franchise, validated by an external valuation that provided investors with reassurance.

Group 8 Created with Sketch. The deal is the first of its kind but likely a harbinger of many more to come. J.P. Morgan has led the sector since the financial crisis and this is another example of how we use expertise in intangible valuations to stay at the forefront. Andreas Pierroutsakos Managing Director, Leveraged Finance J.P. Morgan

Combined with Delta’s strong management team and strong balance sheet position, the campaign sparked strong demand. “The whole high yield market poured into this deal and we built a book worth $10 billion,” Tramontozzi said.

As a result, the bond issue more than doubled from $1.5 to $3.5 billion, ensuring greater financial stability for Delta.

Despite the increased size, the J.P. Morgan team was able to keep the coupon at 7% with no covenant, which both Delta and the market were comfortable with. On the day of the deal, the team allocated the securities to quality long-term investors and worked to ensure trading stability for the bond in volatile market conditions.

“The client was very happy with this transaction and at the same time investors viewed it as a good trade,” said Pierroutsakos. “The deal is the first of its kind but likely a harbinger of many more to come. J.P. Morgan has led the sector since the financial crisis and this is another example of how we use expertise in intangible valuations to stay at the forefront.”

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