Delta Air Lines locked in $500 million in cheap funding with its first enhanced equipment trust certificate (EETC) in four years earlier this month.
The $425 million senior 2019-1 AA notes came in at 70 basis points (bps) over the benchmark for an all-in rate of 3.304%, and the junior $75 million A notes at 90bps over the benchmark for a 3.404% rate on 6 March.
The cost of capital for the 2019-1 transaction is cheaper than Atlanta-based Delta's last senior unsecured bonds that priced between 3.4% and 4.38% in April 2018, as well as United Airlines' $935 million 2018-1 notes with the AAs at 78bps and the As at 98bps in January 2018 – the last EETC to price with spreads on both tranches below 100bps.
Strong investor interest from Delta's corporate funding approach to the transaction, buoyed by scarcity of EETC paper from the airline, helped drive the low rates. The airline's investment grade balance sheet plus the bullet maturities in 2024 of both tranches, which helped attract new investors to the EETC, contributed to the high oversubscription of the 2019-1 notes, FlightGlobal understands.
The 2019-1 AAs were 6.4x oversubscribed and the As 8.3x oversubscribed.
In addition, Delta will not extract as much of the value from the 14 aircraft in the collateral pool as it could at the beginning of the transaction. The loan-to-value (LTV) will rise over the term of the debt, instead of the traditional EETC model of declining, because it is a bullet maturity.
Delta's investment grade balance sheet allowed it to take this approach. It has the flexibility to tap low-cost corporate unsecured debt as well as commercial bank loans and attractive lease rates from sale-and-leasebacks (SLBs).
Other carriers that could do a similar EETC include British Airways and Qantas Airways, both of which also benefit from investment grade ratings. Frequent issuers American Airlines and United Airlines would likely face challenges doing a similarly structured transaction, FlightGlobal understands.
Delta's 2019-1 notes are secured by 14 aircraft, including two Airbus A220-100s, six Airbus A321s, two Airbus A350-900s and four Boeing 737-900ERs, delivered in 2018.
Credit Suisse was sole structuring agent of the 2019-1 transactions. Joint lead bookrunners include Credit Suisse, Citi, Deutsche Bank and Wells Fargo. Commonwealth Bank of Australia is liquidity facility provider.
Delta is evaluating funding options for its 2019 deliveries, which total 87 new aircraft, Delta managing director of fleet management Daniel Pietzrak told FlightGlobal at the conference in Orlando this week. It financed three aircraft through SLBs with BBAM in March.
The airline forecasts $4.7 billion in capital expenditures this year.
Source: Cirium Dashboard