Delta Pacific routes refinancing increases leverage: S&P

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Delta Air Lines' planned refinancing of its Pacific routes would raise the amount of debt against the assets by about a fifth, according to Standard & Poor's (S&P).

The rating agency says that debt against the routes would increase to $1.75 billion from $1.45 billion with the refinancing, in a report on 1 October.

The $1.95 billion refinancing is split between $1.7 billion in first lien senior secured credit facilities and $250 million in other debt financing, according to a stock exchange filing. The first lien debt includes a $1 billion term loan B-1 with a six-year maturity, a $250 million term loan B-2 with a 3.5-year maturity and a $450 million revolving credit facility with a five-year maturity.

Atlanta- based Delta's route authorities between the USA and countries that border the Pacific ocean, related take-off and landing slots at airports except those at New York's John F. Kennedy, and gate leaseholds needed for its Pacific network back the refinancing, according to S&P.

Morten Beyer & Agnew appraised the assets at between $3.28 billion and $3.95 billion at current market values, according to the rating agency.

S&P notes that a potential credit negative would be a ruling by the US bankruptcy court in American Airlines' chapter 11 reorganisation that the carrier's existing trans-Atlantic routes backed debt was undersecured. Such a ruling would devalue bondholders' assets and potentially "make the international routes useless as collateral for future borrowings", it says.

S&P rates Delta's proposed issue B+ and Moody's rates in Ba2.

The airline held a bank meeting on the refinancing on 1 October.