Delta Reorganization: How Badly Would The Airports Be Damaged

Presumably less than if Delta completely disappeared, which is the justification for shedding tens of millions in debt.

Yvette Shields at The Bond Buyer filed a superb story this week about how airports may fare under the carrier's USAirways-free reorganization plan:

Delta Air Lines Inc. filed a Chapter 11 reorganization plan with the bankruptcy court yesterday that anticipates the elimination of at least $1.2 billion of its $1.7 billion of municipal debt while providing a payout of between 63% and 80% for bondholders reduced to the category of unsecured claimants. ...

The airline entered bankruptcy with $1.8 billion of special facilities revenue bonds issued for projects at airports in Boston, Chicago, Dallas-Fort Worth, Atlanta, Salt Lake City, San Francisco, Los Angeles, and certain other locations.; A total of $18.7 million in unpaid interest has accrued since the bankruptcy filing...

The story has a detailed breakdown of how the classification of different leases and bonds could affect those airports financially. If you want to read Delta's own explanation, it starts on page 46 of the 183-page disclosure statement (or page 67 if you go by the Adobe count). Here's the link to that pdf file; and don't say I didn't warn you it's 183 pages.  I've excerpted that section--click on "Continue reading..." to pull it up. The first item concerns Delta's agreement with Massport for Boston Logan, up for court approval next month. The others on the list are Cincinnati, Atlanta, Dallas, Tampa, Portland and Los Angeles.

n. Airports/Facilities Restructuring

As of the Petition Date, the Debtors were party to hundreds of leases and other agreements governing the Debtors use and occupancy rights at airport and other facilities throughout the United States. During the Chapter 11 Cases, the Debtors have undertaken various initiatives to restructure their operations and obligations at many of those facilities in order to reduce costs and to establish an airport footprint that serves the Debtors future network plans. If the initiatives described below are successfully completed, they are projected to generate approximately $120 million per year in annual savings and eliminate approximately $1.2 billion in debt (approximately $600,000 of which is currently classified as obligations under operating leases.)

1. Airport Revenue Bond Facilities
Delta leases a number of airport facilities financed, in whole or in part, by tax-exempt special facilities bonds issued on behalf of Delta. Pursuant to the agreements governing these special facility bonds, Delta is required, among other things, to fund amounts sufficient to cover interest payments, premiums (if any) and principal payable at maturity on such bonds. During the Chapter 11 Cases, Delta was able to substantially reduce its obligations with respect to various special facility bonds and bond-financed facilities.

Boston/Logan. Delta has been working with the Massachusetts Port Authority ( Massport ), the Bank of New York as indenture trustee (the Massport Trustee ) for three series of revenue bonds in the aggregate principal amount of $497,585,000 (the $497,585,000 Massachusetts Port Authority Special Facilities Revenue Bonds (Delta Air Lines, Inc. Project), Series 2001A, 2001B and 2001C) issued by Massport (the Massport Bonds )) and Ambac Assurance Corporation ( Ambac ), as insurer of the Massport Bonds, to restructure Delta's Terminal A Lease and related agreements and obligations at Logan.

Delta, Massport, the Massport Trustee and Ambac have entered into a settlement agreement, providing, among other things, for a reduction in Delta's leasehold premises to a level more appropriate for Delta s operations, the ability of Delta to return some additional space in 2007 and 2011 and the reduction of Delta s lease term to ten years. The settlement agreement, assumption of the amended Terminal A Lease and restructuring of related agreements is subject to Bankruptcy Court approval. If the restructuring is approved by the Bankruptcy Court, the savings to Delta are expected to be substantial. The motion has been set for hearing in January 2007.

Cincinnati. Delta has been working with the Kenton County Airport Board ( KCAB ) and UMB Bank, N.A. as indenture trustee ( KCAB Trustee ) for two series of revenue bonds in the aggregate original principal amount of $438,000,000 (the $419,000,000 Kenton County Airport Board Special Facilities Revenue Bonds 1992 Series A (Delta Air Lines, Inc. Project) and $19,000,000 Kenton County Airport Board Special Facilities Revenue Bonds 1992 Series B, (Delta Air Lines, Inc. Project)) issued by the KCAB (the KCAB Series 1992 Bonds ) to restructure Delta s obligations related to Terminal 3, Concourse B and certain other facilities and improvements constructed with the proceeds of such bonds. Currently, the amount outstanding under the KCAB Series 1992 Bonds is $413,570,000.

In July 2006, Delta reached an agreement in principle with KCAB and the KCAB Trustee concerning settling various matters related to the KCAB Series 1992 Bonds and Delta s continued use of most of the facilities constructed with the proceeds of such bonds after Delta rejects the related 1992 Facilities Agreement and certain other agreements. Recently, negotiations to finalize the settlement appear to have reached an impasse and there is no assurance that a settlement is still possible.

Atlanta. Delta has not made any of the semi-annual interest payments since the Petition Date on (i) the $29,900,000 Development Authority of Fulton County (Georgia) Special Facilities Revenue Bonds (Delta Air Lines, Inc. Project), Series 1992 or (ii) the $124,770,000 Development Authority of Fulton County (Georgia) Special Facilities Revenue Bonds (Delta Air Lines, Inc. Project), Series 1998 (collectively, the Fulton County Bonds ). Because Delta considers its obligations with respect to the Fulton County Bonds to be pre-petition unsecured obligations, Delta intends to discharge the debt through the Plan.

Dallas. Delta has not made any of the semi-annual interest payments due since the Petition Date on (i) the $116,500,000 Dallas-Fort Worth International Airport Facility Improvement Corporation, Delta Air Lines, Inc. Revenue Bonds, Series 1991 (of which $108,935,000 was outstanding on the Petition Date) or (ii) the $25,870,000 Dallas-Fort Worth International Airport Facility Improvement Corporation, Delta Air Lines, Inc. Revenue Refunding Bonds, Series 1993 (collectively, the DFW Bonds ). Because Delta considers its obligations with respect to the DFW Bonds to be pre-petition unsecured obligations, Delta
intends to discharge the debt through the Plan.

Tampa. In order to streamline Delta s maintenance operations, Delta closed its Tampa maintenance base and rejected the lease for this facility effective June 30, 2006. In connection with that rejection, a draw on a GE letter of credit paid off the $16,495,000 Hillsborough County Aviation Authority Special Purpose Revenue Refunding Bonds (Delta Air Lines, Inc. Project), Series 2000 secured by that letter of credit, with Delta remaining obligated to reimburse GE under the terms of a loan arrangement with GE. Additionally, Delta s view is that the $8,000,000 in Hillsborough County Aviation Authority Special Purpose Revenue Refunding Bonds (Delta Air Lines, Inc. Maintenance Base Facility Project), Series 1993, not secured by the GE letter of credit is an unsecured obligation subject to the appropriate limitation on lease rejection damages provided in section 502(b)(6) of the Bankruptcy Code.

Portland. Delta rejected three leases of surplus air freight, cabin service and ground equipment maintenance facilities at Portland International Airport effective April 1, 2006. The facilities lease that covered debt service on the $8,545,000 Port of Portland Special Obligation Revenue Bonds, Series 1992 (Delta Air Lines, Inc. Project) was rejected together with the two associated ground leases. Delta s view is that this unsecured obligation is subject to the limitation on lease rejection damages provided in the Bankruptcy Code section 502(b)(6).

Los Angeles Shortly after the inception of the Chapter 11 Cases, Delta initiated an adversary proceeding against the City of Los Angeles, the relevant regional airport authority and the trustee for its Los Angeles Terminal 5 bond issuance, seeking to recharacterize the lease payments associated with the debt service on the bonds. The Bankruptcy Court stayed the litigation pending a ruling in a similar litigation involving United Airlines. The United Airlines decision has since been issued, but the Delta recharacterization litigation remains voluntarily stayed.