By Elise Hansen

Law360 (April 30, 2020, 2:18 PM EDT) -- Delta Air Lines said Thursday it raised $3.5 billion in a recent debt offering with guidance from Davis Polk and Kilpatrick Townsend, more than double the cash-hungry airline operator's original goal. 

Georgia-based Delta Air Lines Inc. initially targeted $1.5 billion worth of senior secured notes, but ended up raising $3.5 billion in Wednesday's offering, according to disclosures filed Thursday with the U.S. Securities and Exchange Commission. The airline operator joins the growing ranks of corporations turning to debt markets for cash as the coronavirus pandemic roils markets.

Delta also entered a new $1.5 billion credit facility that it has drawn down in full, the SEC filing said. The combined $5 billion in financing from the two transactions means the company expects to have more than $12 billion in cash to work with at the end of its fiscal quarter in June, according to a Thursday memo to Delta employees.

The funding "reflects lenders' belief that Delta and our business will return to a position of strength when the nation begins to recover," CEO Ed Bastian said in the memo.

Delta will use the cash for general corporate purposes, according to the SEC filing. The company is burning through $50 million a day, Bastian said in the employee memo. Bastian said the company's current high costs and low revenue are "just not sustainable over time."

The notes have a 7% interest rate and are due in 2025, the SEC filing said. Delta said it's using various licenses to operate routes between the U.S. and the U.K., Europe and Latin America as collateral. Specifically, the collateral includes Delta's licenses to operate those routes and its rights and interests in airport takeoff and landing slots at airports in those regions, including at London Heathrow Airport, New York's LaGuardia Airport and John F. Kennedy International Airport and the Reagan National Airport in Washington, D.C.

"While borrowed money will tide us over in the near-term, we have had to put up many of our prized franchise assets — our New York, Washington, D.C., and London slots, among others — as collateral to secure the loan," Bastian said. "And the high level of debt will be a burden on our future growth."

Delta said it has also applied for $4.6 billion in loans under the Coronavirus Aid, Relief and Economic Security, or CARES, Act. Funds from the $2 trillion relief package are available to airlines and many have applied, although the terms of the financing may cause some companies to balk at the offer.

Delta has until September to decide if it will accept the CARES Act funding and "will only move forward if we need to add to our cash position later in the year," Bastian said.

Delta isn't the only company to offer steep interest rates on debt in order to shore up cash. Fast-food franchise owner Yum Brands Inc. in late March completed a $600 million issuance of bonds paying a 7.75% yield, while Burger King owner Restaurant Brands International Inc. earlier this month borrowed $500 million in a secured debt offering that pays a 5.75% annual yield.

The airline industry has been particularly hard-hit by the pandemic and accompanying travel restrictions. Several smaller airlines have been pushed into bankruptcy, while United Airlines recently sold $1 billion in common stock to bolster its balance sheet.

A representative for Delta declined to comment beyond the company's regulatory filings. 

Delta is represented in the note offering by Kilpatrick Townsend & Stockton LLP and Davis Polk & Wardwell LLP.

Update: this story has been updated to reflect a response from Delta and with counsel information.

Davis Polk represented Delta in the credit facility. 

--Additional reporting by Stephen Cooper, Tom Zanki, Jeff Montgomery, Linda Chiem and Vince Sullivan. Editing by Alanna Weissman.

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