Delta Regains S&P 500 Status Lost on Eve of Bankruptcy

Delta Air Lines Inc. (DAL), the world’s second-largest carrier, will replace BMC Software Inc. (BMC) in the Standard & Poor’s 500 Index after reducing debt and restarting dividend payments in its comeback from bankruptcy.

The move will take effect after the close of trading on Sept. 10, according to a statement yesterday from S&P Dow Jones Indices, making Atlanta-based Delta just the second carrier in the index after Southwest Airlines Co. BMC is being bought by closely held Bain Capital LLC.

“They try to reflect the nature of the American economy as much as possible, and as a large player in the airline industry, it makes sense that they would go in,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama.

Inclusion in the benchmark gauge for U.S. equities marks a milestone in Delta’s turnaround after being dropped in August 2005 ahead of its bankruptcy filing weeks later. President Ed Bastian said in a May 22 interview that executives were hopeful that Delta would win back its spot in the index and eventually regain investment-grade credit ratings.

The S&P revision will prompt money managers to shift holdings to match the index, Hellwig said by phone. More than $5 trillion is benchmarked to the S&P 500, according to the website. Delta’s shares climbed as much as 5.5 percent to $20.99 in trading after U.S. exchanges closed yesterday.

At $17.1 billion, Delta’s market value was the largest among U.S. airlines, ahead of United Continental Holdings Inc.’s $10.6 billion.

‘Short List’

Trebor Banstetter, a Delta spokesman, didn’t return phone and e-mail messages left after normal business hours yesterday. Bastian said in the May interview that Delta had been told by investment bankers it was “on some short list” of possible index additions.

Delta’s 68 percent gain this year is the second most in the Bloomberg U.S. Airlines Index, trailing only discount carrier Spirit Airlines Inc. (SAVE) The closing price of $19.89 was 2.7 percent less than on April 30, 2007, the day Delta left court protection, as the airline continues to claw back from a bear-market low of $3.93 in March 2009.

S&P rates Delta as B+, or four steps below investment grade, after a May 10 boost from B marked the first upgrade since its bankruptcy exit. Moody’s Investors Service’s rating is an equivalent B1, data compiled by Bloomberg show.

Debt Target

Delta set a new target in May for lowering its adjusted net debt to $7 billion from a previous goal of $10 billion, which it projects meeting in 2013. Four years ago, the debt stood at $17 billion.

As part of its bankruptcy restructuring, the airline shed 6,000 workers and added overseas routes -- 60 to start with upon its Chapter 11 exit -- that typically command higher fares because of the absence of discount competition.

In 2008, Chief Executive Officer Richard Anderson acquired Northwest Airlines, vaulting Delta to the top of the global traffic rankings until United Airlines and Continental Airlines merged to form United Continental in 2010.

In May, Delta announced plans to return $1 billion to investors by repurchasing stock for the first time since 2000 and restarting its dividend after a decade-long break. The dividend of 6 cents a share will be payable on Sept. 10, when Delta rejoins the S&P 500.

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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