Delta Airlines 2002 Annual Report Download - page 151

combined effect of (1) the anticipated need to record at December 31, 2002, a
substantial non-cash charge to equity relating to our defined benefit pension
plans (see Note 11); (2) our increased debt levels; and (3) our continuing
losses since 2001. In consideration for these changes, we:
- Agreed to comply with a new cash maintenance covenant that was added to
the Reimbursement Agreement. See the Covenants and Change in Control
Provisions section below.
- Agreed that the Reimbursement Agreement and the letters of credit
issued thereunder would terminate on June 8, 2003. These letters of
credit were originally scheduled to expire between June 8, 2003 and
December 4, 2003.
- Terminated in October 2002 a reimbursement agreement with Bayerische
Hypo-Und Vereinsbank AG and a group of banks (HVB Agreement) and the
related letter of credit that supported our obligations with respect to
the Series C Guaranteed Serial ESOP Notes (ESOP Notes). Several of the
banks that are parties to the Reimbursement Agreement also participated
in the HVB Agreement. The HVB Agreement was originally scheduled to
expire on May 19, 2003. See the ESOP Notes section below.
The Reimbursement Agreement generally provides that, if there is a drawing under
a letter of credit to purchase bonds that have been tendered, we may convert our
repayment obligation to a loan that becomes due and payable on the earlier of
(1) the date the related bonds are remarketed or (2) June 8, 2003.
Unless the letters of credit issued under the Reimbursement Agreement are
extended in a timely manner, we will be required to purchase on June 3, 2003,
five days prior to the expiration of the letters of credit, the related $403
million principal amount of tax-exempt municipal bonds. In these circumstances,
we could seek, but there is no assurance we would be able, to (1) sell the bonds
without a letter of credit enhancement at then prevailing fixed interest rates
or (2) replace the expiring letters of credit with a new letter of credit from
an alternate credit provider and remarket the related bonds.
ESOP NOTES
We guarantee the ESOP Notes issued by the Delta Family-Care Savings Plan. The
holders of the ESOP Notes were entitled to the benefits of an unconditional,
direct-pay letter of credit issued under the HVB Agreement. Required payments of
principal, interest and make-whole premium amounts on the ESOP Notes were paid
under the letter of credit. As part of the amendment to the Reimbursement
Agreement discussed above, we terminated the HVB Agreement on October 21, 2002.
To effect the termination of the HVB Agreement, on September 30, 2002, we
provided the required advance notice of our decision to terminate early the
letter of credit issued under that agreement. As a result of this action, each
holder of the ESOP Notes had the right to require us to purchase its ESOP Notes
before the termination of the letter of credit. Some, but not all, of the
holders of the ESOP Notes exercised this right. On October 15, 2002, we
purchased ESOP Notes for $215 million, covering $169 million principal amount of
ESOP Notes, $4 million of accrued interest and $42 million of make-whole
premium. The $42 million loss recognized for the make-whole premium related to
this extinguishment of debt was recorded in other income (expense) on our
Consolidated Statements of Operations.
As a result of the termination of the letter of credit issued under the HVB
Agreement, the holders of the remaining $92 million principal amount of ESOP
Notes that we did not purchase on October 15, 2002, had the right to tender
their ESOP Notes for purchase by January 26, 2003. Some, but not all, of the
remaining holders of the ESOP Notes exercised this right. On January 26, 2003,
we incurred an obligation to purchase on February 25, 2003, ESOP Notes for $74
million, covering $57 million principal amount of ESOP Notes, $3 million of
accrued interest and $14 million of make-whole premium. The $14 million loss
recognized for the make-whole premium related to this extinguishment of debt
will be recorded during the March 2003 quarter in other income (expense) on our
Consolidated Statements of Operations. Subsequent to our purchase of these ESOP
Notes, $35 million principal amount of ESOP Notes is held by third parties.
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