Delta Air Lines Inc. (DAL) is seeking to reduce the rate on $1.49 billion of loans, according to a person with knowledge of the transaction.
The third-largest U.S. carrier is proposing to lower the rate on a $1.09 billion B-1 portion due in October 2018 to 2.75 percentage points more than the London interbank offered rate, down from 3 percentage points more than Libor, said the person who asked not to be identified without authorization to speak publicly. The minimum on the lending benchmark may be lowered to 0.75 percent from 1 percent, meaning Delta’s annual interest on the debt will be lowered to $38 million from $43 million.
Delta, which obtained the financing in April, is joining at least 30 speculative-grade companies seeking to reduce rates on more than $31 billion of leveraged-loans amid unprecedented demand for the floating-rate debt, according to data compiled by Bloomberg. Investors poured a record $70.6 billion into funds that buy the loans that have rates that rise with benchmarks and have limited restrictions on early repayment, according to EPFR Global.
The interest on Delta’s loan may be lowered to 2.5 percentage points when its ratings are BB- and Ba3 or better, the person said. Delta currently carries BB- and B1 grades from Standard & Poor’s and Moody’s Investors Service, respectively.
Delta, based in Atlanta, has about $8.25 billion in borrowings. The company reduced the rate on a $1.34 billion term loan due in 2017 in November, Bloomberg data show. A message left at Delta’s corporate communications wasn’t immediately returned.
The company is also seeking to eliminate the minimum on the lending benchmark on a $396 million B-2 piece due in April 2016, the person said. Delta will continue to pay interest on that portion at 2.25 percentage points more than Libor.
Both loans are offered to investors at 100 cents on the dollar and lenders to the $1.089 billion slice will receive six months of soft-call protection, the person said, meaning Delta would have to pay one cent more than face value to reprice the debt in its first six months.
Barlcays Plc is leading the transaction and lenders must submit commitments to the bank by 5 p.m. in New York on Jan. 31, the person said.
American Airlines Group Inc. is the biggest U.S. air carried followed by United Continental Holdings Inc.
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