The Noose tightens on Gerry

[Gilding the Lily]

Technically not true. Citi agreed to loan US the money if the merger goes through, presumably with assurances of sufficient collateral to insure that they're not at risk. Just like buying a house (for most of us, anyway). The bank "gives" us the money and we "give" the bank ownership of the house if we don't pay it back.

Jim

I am sure that Citibank would "secure" its loan to a point; but I highly doubt that US has the requisite amount of "free" assets to relieve Citibank of all its risk. US most likely still has significant debt due to its DIP financing and I am sure that many assets are secured by Boeing/Airbus or other creditors that were involved in the previous merger.

I think that Citibank would likely undersecure the loan to about 20-40% (just a guesstimation)... the rest of the $$$ is loaned out on faith that the newly merged, slimmer airline would fulfill its loan agreement. Although I am not certain, I would also venture a guess that if the merger goes through, Citibank would actually be financing the DIP after the plan is accepted. This would give Citibank a "priority" if things should go sour.

 

[BoeingBoy]

More importantly Citi would not loan the money if they were not confident in the plan. Because they too could lose their monies in another BK.

Do you have evidence that Citi is loaning (or giving, that wasn't really my point) the money without collateral? That's the only way they could lose it in another bankruptcy. And that was my point - I strongly suspect that Citi is assured of getting their money one way or the other - repayment if Parker's plan works out or thru collateral if it doesn't.

Again, just like a house - the bank wants evidence that you'll be able to repay the loan but insists on collateral in case you can't. If the bank was so confident of your plan to repay, they wouldn't need the collateral, would they?

So any talk of "Citi must have confidence in the plan" is only valid if Citi doesn't get collateral. You or I could borrow $7+ billion if we had $8 billion of collateral and a nice powerpoint presentation to offer.

Jim

 

[BottomFeeder]

Do you have evidence that Citi is loaning (or giving, that wasn't really my point) the money without collateral? That's the only way they could lose it in another bankruptcy. And that was my point - I strongly suspect that Citi is assured of getting their money one way or the other - repayment if Parker's plan works out or thru collateral if it doesn't.

Jim

Jim

Are you trying to say that Citi will have no unsecured monies in this deal?

If there are unsecured monies at 7+ Billion Dollars then I would have to believe that they are counting on Parker and his plan. Otherwise with your theory the Delta gang should have all sorts of banks throwing monies at them. Which we know not to be the case.

 

[abe]

Otherwise with your theory the Delta gang should have all sorts of banks throwing monies at them. Which we know not to be the case.

Really? You don't think there are a few banks out there that might want to throw some bucks at a Delta stand alone plan?

You know that "not to be the case?"

Wow...how did you arrive at this opinion?

You must be on the Delta BOD, right? Or maybe you have a friend who has a sister who cleans Grinstein's house?

Abe

Maybe it's just me, but I'm thinking that if Jerry didn't have some back-up money lined up, he would have given Parker a big wet kiss on the lips, then scadaddled back to SEA to play with the grandkids!

 

[BoeingBoy]

Are you trying to say that Citi will have no unsecured monies in this deal?

No, I'm merely saying that I strongly suspect that they won't have any unsecured money in this deal - I haven't seen the agreement with Citi and doubt more than a handfull of people have.

If there are unsecured monies at 7+ Billion Dollars then I would have to believe that they are counting on Parker and his plan.

Well, I can come awfully close to guaranteeing that there aren't $7+ Billion unsecured dollars in this deal - everything over $4 Billion is to refinance the GE loan which carries plenty of collateral. If the $4 billion for the DL deal is unsecured (a big IF) then you're right - Citi is confident of Parker's plan.

Otherwise with your theory the Delta gang should have all sorts of banks throwing monies at them. Which we know not to be the case.

Do we really know that? US, not being in BK, has collateral - at least enough for $3+ Billion.

Delta has over $2 Billion in unrestricted cash, but why would they use that for collateral (and restrict it's use) just to borrow $2 Billion. US, on the other hand, could use that as collateral (or to repay part of the loan) if the merger goes through.

DL's "owned" aircraft are mostly tied up in EETC's until that's all settled in BK - the current EETC holders could claim them making those assets unusable for collateral. Once DL/s out of BK, that could represent a significant amount of collateral that US (or DL) could pledge.

The same is true of gates, slots, etc - while those are tied up in BK proceedings DL can't use them as collateral, but upon DL's emergence US can (as can DL).

Remember, we don't yet know what DL's plan for exiting BK is. US sought outside investors to fund the merger, with much of the "new" stock "presold". UA didn't go that route. DL, with a pretty good stash of cash, may be planning on something more like UA and hasn't been actively attempting to take on a lot of new debt.

Or maybe DL doesn't want to exit BK like US - highly leveraged with about $1 of debt for every $1 of assets.

Jim

 

[Gilding the Lily]

No, I'm merely saying that I strongly suspect that they won't have any unsecured money in this deal - I haven't seen the agreement with Citi and doubt more than a handfull of people have.

Jim

Jim,

I have not seen the agreement either; but I suspect, as I noted earlier, that US does not have enough "free" assets to secure that large of an amount. I suspect that 20-40% would be secured. Everything else is likely tied up as collateral from other loans (boeing/airbus, etc.) and DIP financing (likely refinanced) from the last merger. But I also imagine that it has a substantial amount (less than potential loan) of available assets to make financing attractive.

Obviously, the financing is contingent on the merger plan being accepted. If US's plan is accepted and the agreement is set forth, US will likely actually loan the money to the "new" debtor-in-possession. Thus, it would not be necessary to be fully secured because creditors that finance DIP's receive a priority over some of the other claim holders in the event that things turn sour. Of course, this is speculation... but I have seen enough pre-discharge mergers/buy-outs to know that most acquiring companies do not have the requisite assets to fully secure the loan (this does not include small chp. 11s or liquidation of assets).

 

[BoeingBoy]

I'm just going by Parker's plan as outlined and the announcement of the potential Citi financing....

You're almost guaranteed to be correct on one thing - about 40% of the 7+ Billion will be secured. That's the ATSB backed loan (secured), transferreed to a group of lenders without the ATSB backing (secured), refinanced by GE (secured), to be refinanced by the Citi loan (almost surely secured).

So what we're really talking about is the 4 Billion that will go to DL unsecured creditors if the merger is approved, according to Parker's plan as publicly revealed. That tells me it won't be DIP financing that could be spent by DL while in BK - it'll go to the unsecured creditors (how much to which to be determined) after approval of a POR and BK exit (though as in the US case, some may be paid out before exit by mutual agreement to settle claims).

It's that $4 Billion that nobody outside Citi or US upper management knows whether will be secured or unsecured. My money is on secured - no bank has loaned US anywhere near that much without collateral. But I've been wrong before and undoubtedly will be again. However, assuming that Citi's loan won't be backed by collateral is just as much speculation as my assumption that it will be.

Boeing definitely isn't a US lendor, BTW, although they are a pretty large DL unsecured creditor - all those undelivered aircraft orders primarily - and undoubtedly have outstanding balances due from US at any given time for such things as aircraft parts. Airbus was, but that was repaid (part of the refinancing done by GE, if I remember correctly) except for a portion that was forgiven in exchange for the A350 order (which showed as income in either the 3ed or 4th quarter of 2005).

Jim

 

[Gilding the Lily]

I'm just going by Parker's plan as outlined and the announcement of the potential Citi financing....

You're almost guaranteed to be correct on one thing - about 40% of the 7+ Billion will be secured. That's the ATSB backed loan (secured), transferreed to a group of lenders without the ATSB backing (secured), refinanced by GE (secured), to be refinanced by the Citi loan (almost surely secured).

So what we're really talking about is the 4 Billion that will go to DL unsecured creditors if the merger is approved, according to Parker's plan as publicly revealed. That tells me it won't be DIP financing that could be spent by DL while in BK - it'll go to the unsecured creditors (how much to which to be determined) after approval of a POR and BK exit (though as in the US case, some may be paid out before exit by mutual agreement to settle claims).

It's that $4 Billion that nobody outside Citi or US upper management knows whether will be secured or unsecured. My money is on secured - no bank has loaned US anywhere near that much without collateral. But I've been wrong before and undoubtedly will be again. However, assuming that Citi's loan won't be backed by collateral is just as much speculation as my assumption that it will be.

Boeing definitely isn't a US lendor, BTW, although they are a pretty large DL unsecured creditor - all those undelivered aircraft orders primarily - and undoubtedly have outstanding balances due from US at any given time for such things as aircraft parts. Airbus was, but that was repaid (part of the refinancing done by GE, if I remember correctly) except for a portion that was forgiven in exchange for the A350 order (which showed as income in either the 3ed or 4th quarter of 2005).

Jim

Absolutely... I guess we just have different assumptions regarding the 4 billion. Also, the accepted plan can dictate, somewhat, how some of the DIP financing is to be used. Thus, since the merger would take place before discharge, the monies can be used for specific purposes (limited). The other 3 million I assumed would be used as the DIP financing once it was refinanced by Citi (and thus, Citi could use the newly available assets to secure much of the 4 billion that is in question).

Also, I was not suggesting that Boeing or Airbus lent money to US; I was suggesting that assets are tied up by loans on those products. Obviously, US (pre- and post-merger) would have taken out loans from several banks to purchase those products. Even if US refinanced, those assets were likely still used as the collateral on the loans, but just refinanced at more favorable rates.

 

[BoeingBoy]

Thus, since the merger would take place before discharge, the monies can be used for specific purposes (limited).

That may really be the gist of the debate. I've seen nothing hinting that the merger would be consumated prior to DL's emergence - agreed to & approved most certainly, but not consumated. Again, unsecured creditors generally get "paid" after BK exit, not before, and the Citi money is supposedly for settling unsecured claims (along with the 78.5M shares of stock).

My presumption is that a DL/US merger would be identical to the HP/US merger at least in this respect - the POR would be based on the two companies merging but the merger wouldn't happen until DL's BK exit. And just like in the US/HP merger, the money to finance the merger would flow in upon DL's exit from BK and official merger with US. In short, Citi is playing the role that the outside investors played in the HP/US merger - agreeing to provide money but not providing it until BK exit and corporate merger are complete.

Jim

 

[flyhigh]

In the article linked earlier in the thread it mentions that the reorganized DL would be worth between ~$10-$12 billion. I'm guessing that those figures are based on assumptions in DL's plan which likely includes stock offers to creditors. Now, I'll admit I'm making that assumption but I think it's a fair one given that we've seen a lot of that in other reorganizations in the industry. I'd be curious to see what assumptions are being made on stock prices post bankruptcy. I think that will be a pivotal deciding factor.

Regarding the post Abe made re: Parker. Why is making a hostile takeover offer a sign of poor skills or not doing his job? By announcing that Airtran has made overtures toward Midwest but was rejected, you could say Joe Leonard is doing much the same thing as Midwest will likely get calls from it's largest creditors/stockholders to give a merger second thought. Until news like this is announced, you're really only obligated to tell the BOD which typically rubber stamps management decisions (even in a post-Enron/Sarbannes-Oxley environment). Hostile takeovers happen pretty often. They've occured in the airlines but not as successfully (primarilly due to their structure). When Lorenzo took over CO and Icahn TW, they were hostile in both cases. Both were leveraged buy-outs which create far more problems. This is a far different animal that Parker is presenting.

As for the A350 order, I believe US has been released from that obligation because of the delays in production. Additionally, the loan from Airbus is repaid which may be another reason they are released from that obligation. If US needs to sign a deal with Boeing to secure the merger, it may be worth it. Either way, the current DL fleet needs to see some new aircraft. The tiny 73G order won't do it. There's a whole fleet of M80's that are getting long in the tooth. AA has recently noted that it will very soon begin looking at fleet options with specific consideration toward the narrowbody area. DL's in the same boat. Us could place an order that takes care of those aircraft and in the future replaces the 319/320 fleet which Boeing would like as well.

It seems in the end, this deal will die on the vine but go pretty far in the process. Much like the UA/US deal did. If DOJ doesn't kill it, Congress will try to. If not Congress, US's unions will try to kill it. That's too many obstacles to overcome...