Delta to raise $6.5b in debt backed by miles program

Delta will use its frequent-flyer program as collateral in a $6.5b debt sale, mirroring other US carriers that have tapped the valuable assets to build cash as the coronavirus pandemic and travel restrictions suppress demand. The airline and SkyMiles, a new subsidiary named for the loyalty plan, will be co-issuers of the senior secured notes and co-borrowers under the credit facility, Delta said Monday. Sale of the bonds isn’t contingent on closing the term loan, Delta said. United and Spirit have also tapped loyalty programs to back debt, signaling that financial pressure on carriers isn’t easing as demand for domestic travel remains about 70% below a year ago and international service is almost nonexistent. Delta is raising $4b in bonds in two equal portions maturing in five and eight years, with early pricing discussions around 5% and 5.375%, respectively, people with knowledge of the matter said. Goldman Sachs, Barclays, JPMorgan Chase & Co. and Morgan Stanley are lead managers on the offering, the people said. The airline and its bankers will market the bonds through Sept. 17 and pricing will follow, one of the people said. Delta is raising $2.5b in term loans in a deal led by Barclays. Delta has declined to disclose the value of SkyMiles but said Monday that travel among loyalty plan members has declined along with overall demand. Total miles redeemed in the first half declined by 78%, reducing revenue from loyalty travel awards by 59%, the carrier said in a regulatory filing. Over the same period, cash from miles sales to American Express fell less than 5% from a year earlier to $1.9b from the use of co-branded credit cards. The agreement on the debt offering means Delta won’t pursue a second loan from the US Treasury. <br/>