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Delta borrows $9B in largest airline debt sale ever

Delta Air Lines Inc. raised $9 billion in the industry’s largest debt sale ever, tapping into investors’ rampant demand for yield while seeking to survive a slowdown that’s causing it to burn through $27 million a day.

The bonds, secured by Delta’s frequent-flier program, carry high-grade ratings, but some yield as much as 4.75%, according to people with knowledge of the matter. That’s more than double the average 2.31% yield on the lowest-rated unsecured investment-grade bonds, even with a higher duration, according to a Bloomberg Barclays index.

The prospective payout was so alluring to investors that they placed three times as many orders as bonds and loans available for sale. That allowed Delta to boost the size of the deal from an original $6.5 billion — which the company said already would’ve been enough to rule out the need for additional federal aid.

The carrier is taking advantage of a wide-open market for corporate debt that’s seen both record supply and demand spurred by an accommodative Federal Reserve. Boeing Co. similarly said it wouldn’t seek government funding after borrowing $25 billion in April in the year’s largest bond sale.

As of this morning, investors had placed about $16 billion of orders for the bonds and around $10 billion for the loan, said the people, who asked not to be identified as the details are private. The $2.5 billion of five-year bonds will yield 4.5%, while the $3.5 billion eight-year portion priced at 4.75%, the people said.

The $3 billion seven-year loan also wrapped up today with a spread of 375 basis points over the London interbank offered rate and a discounted price of 99 cents on the dollar, the people said.

Representatives for Goldman Sachs Group Inc., which was lead manager on the bond sale, and Barclays Plc, which led the loan, declined to comment. A representative for Delta also declined to comment.

At $9 billion, Delta’s transaction was the largest ever for a commercial carrier. United Airlines Holdings Inc. previously set that record with a $6.8 billion sale of bonds and loans in June, inspiring peers to similarly pledge their miles rewards programs as collateral.

The cash will help boost Delta’s liquidity as passenger volumes are only 30% of what they were this time last year, according to a memo by Chief Executive Officer Ed Bastian on Tuesday. Proceeds could also be used to help repay a $3 billion term loan due in March, as well as a revolving credit facility of the same amount, according to Moody’s Investors Service.

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