US Airways has received $7.2 billion in commitments from Citigroup to back its proposed merger with Delta Air Lines, which is still sitting in bankruptcy. The merger would provide approximately $8 billion of value in cash and stock to Delta’s unsecured creditors.
The deal could consist of a $5 billion term loan and a $1.65 billion bridge facility, according to a US Airways spokeswoman. Approximately $3.2 billion of the credit will be used to refinance Delta’s $1.9 billion debtor-in-possession credit facility and US Airways’ $1.1 billion existing credit with GE Capital. The remainder will provide funding for the $4 billion cash portion of the offer. Delta creditors will also receive 78.5 million shares of US Airways stock with an aggregate value of approximately $4 billion.
Delta’s unsecured bonds jumped 17 points to 58 on US Airways’ proposal to merge with the airline. Northwest Airlines bonds also jumped 10 points on speculation it too could become the subject of a takeover. The airline’s 9 7/8% ’07 bonds were trading at 75. “Northwest is seen as the most likely takeover target,” said a trader. He said US Airways’ offer to Delta’s unsecured creditors values the bonds at 65-70 cents on the dollar.
A spokeswoman said US Airways proposal represents a 25% premium over the current trading price of Delta’s pre-petition unsecured claims as of Nov. 14 and a 40% premium over the past 30 days. She said the proposal would give more value to Delta’s unsecured creditors than if the airline emerged from bankruptcy as a standalone entity.
Gerald Grinstein, Delta ceo, responded last Wednesday with a statement posted on the company’s Web site saying it would review the terms, but continued on to say that Delta’s plan has always been to emerge from bankruptcy as a strong, stand-alone carrier. Delta filed for bankruptcy Sept .14, 2005 and expects to emerge in early 2007.
Standard & Poor’s placed US Airways’ and Delta’s ratings on CreditWatch with developing implications following the proposal. Calls to a Delta spokesman were not returned.