US Airways considering paying more $$$ for Delta...

[FW190]

Delta's bonds traded at around 67 cents on the dollar on Friday, traders said. With a claims pool estimated to be between $14 billion and $16 billion, current bond prices imply a valuation for the No. 3 U.S. carrier of $9.4 billion to $10.7 billion.

Assuming you go with the higher number, it looks like US Airways will need to come up with at least $1.5 billion more to make it legitimate.

The WSJ reported that Delta is going to offer the creditors some cash although less than US Air is offering. Therefore, the bulk of the value Delta is offering its creditors will be in the form of new Delta stock, the value of which at and after emergence from bankruptcy, is a big question mark.

 

[hp_fa]

Assuming you go with the higher number, it looks like US Airways will need to come up with at least $1.5 billion more to make it legitimate.

The beauty of this is LCC doesn't need to do anything further. The debt, that had been worth somewhere between 10 and 30 cents on the dollar is now trading at 67 cents on the dollar. If LCC walks there will be a bunch of pissed off unsecured creditors who purchased debt and are likely to be far more sophisticated then the debt holders they bought out.

If LCC walks they still win by making the emerging DL weaker then they would have been by just having made them play the game.

 

[BoeingBoy]

The WSJ reported that Delta is going to offer the creditors some cash although less than US Air is offering.

Just as in the US BK case, settlements are reached with some creditors which provide for paying the creditor some amount of cash, either in addition to or instead of equity. Those agreements already reached would presumably be honored if US were to be successful in it's merger bid.

How much cash DL will end up agreeing to pay is certainly unknown at this point - heck, how much US will end up paying out to settle claims from it's last BK is still unknown since some claims against US are still unsettled.

Likewise, it's unknown how much of the $4 billion in cash that Parker is offering will go to unsecured creditors because of agreements DL reaches with those creditors, which would presumably be honored if there were a merger.

Jim

 

[NAPAUS]

Drop Delta Airlines then Buy Northwest Airlines!

AMEN!!!!

 

[Gilding the Lily]

Likewise, it's unknown how much of the $4 billion in cash that Parker is offering will go to unsecured creditors because of agreements DL reaches with those creditors, which would presumably be honored if there were a merger.

Jim

Good point. While DL has been tweaking its plan, it surely has been in talks regarding cash with some of its creditors. Hoping for the best outcome, DL's plan would likely offer some creditors more cash (or only cash) in return for offering less equity.

Although it would not be necessary for US's plan to pay the same amount of cash to those creditors, it would behoove US to follow suit (amend plan) and offer the same amount, or more, of the cash offered by DL. As compared to DL's offer, if US was to offer less cash, I do not think it would bode well for its plan or M&A efforts.

 

[BoeingBoy]

Correct, although I'm referring to agreements already reached. An example of a big one is the agreement DL reached with the PBGC - about $500 million in cash plus a remaining claim for $2.2 billion. That agreement was reached before US made it's offer. Is that $500 million coming out of the $4 billion if US is successful in getting it's offer approved?

A much smaller agreement is the one just reached between DL and Massport (plus a couple of other creditors involved in financing concourse A @ BOS). I haven't added it up, but something like a few million will be paid by DL. Same question - will that come out of the $4 billion that US is offering?

In short, many DL unsecured creditors have no way of determining what they will be getting under either plan without a full POR and settlement of all the claims (or at least the bigger ones).

Jim