Delta Airlines 2005 Annual Report Download - page 46

Table of Contents
of a working capital adjustment. Upon the sale of ASA, we repaid, as required, $100 million of outstanding borrowings under a pre-
petition credit facility. The remaining proceeds from our sale of ASA are available for general corporate purposes. See Note 3 of the
Notes to the Consolidated Financial Statements for a list of the major classes of assets sold and liabilities assumed by SkyWest.
Letter of Credit Facility Related to Visa/MasterCard Credit Card Processing Agreement
On January 26, 2006, with the authorization from the Bankruptcy Court, we entered into a letter of credit facility with Merrill
Lynch. Under the Letter of Credit Reimbursement Agreement, Merrill Lynch issued a $300 million irrevocable standby letter of credit
("Merrill Lynch Letter of Credit") for the benefit of our Visa/MasterCard credit card processor ("Processor"). As contemplated in our
Visa/MasterCard credit card processing agreement ("Processing Agreement"), we are providing the Merrill Lynch Letter of Credit as a
substitution for a portion of the cash reserve that the Processor maintains. Under the Processing Agreement, the Processor is permitted
to maintain a reserve from our receivables that is equal to the Processor's potential liability for tickets purchased with Visa or
MasterCard which have not yet been used for travel (the "unflown ticket liability"). We estimate that the reserve, which adjusts daily,
will range between $450 million and $850 million during the term of the Processing Agreement. The Processing Agreement allows us
to substitute the Merrill Lynch Letter of Credit for a portion of the cash reserve equal to the lesser of $300 million and 45% of the
unflown ticket liability.
The Merrill Lynch Letter of Credit may only be drawn upon following certain events as described in the Processing Agreement. In
addition, the Processor must first apply both the portion of the cash reserve that the Processor will continue to hold and any offsets
from collections by the Processor before drawing on the Merrill Lynch Letter of Credit to cover fare refunds paid to passengers by the
Processor.
Our obligation to reimburse Merrill Lynch under the Merrill Lynch Letter of Credit for any draws made by the Processor is not
secured and will constitute a super-priority administrative expense claim that is subject to certain other claims, including our post-
petition financing. The Merrill Lynch Letter of Credit will expire on January 21, 2008, but will renew automatically for one year
periods thereafter unless Merrill Lynch notifies the Processor 420 days prior to the applicable expiration date that it will not renew the
Merrill Lynch Letter of Credit.
Covenants
As discussed above, the DIP Credit Facility and the Amex Post-Petition Facility include certain affirmative, negative and financial
covenants. In addition, as is customary in the airline industry, our aircraft lease and financing agreements require that we maintain
certain levels of insurance coverage, including war-risk insurance. Failure to maintain these coverages may result in an interruption to
our operations. See Note 10 of the Notes to the Consolidated Financial Statements for additional information about our war-risk
insurance currently provided by the U.S. government.
We were in compliance with these covenant requirements at December 31, 2005 and 2004.
GECC Reimbursement Agreement Collateral Value Test. We have an agreement with GECC (the "Reimbursement Agreement")
under which GECC has issued irrevocable, direct-pay letters of credit totaling $403 million to pay the principal and interest on
$397 million aggregate principal amount of tax-exempt special facility bonds ("Bonds") issued to refinance the construction cost of
certain airport facilities leased to us. We are required to reimburse GECC for drawings under the letters of credit, and our
reimbursement obligation is secured by certain of our aircraft and other assets. The Reimbursement Agreement contains a minimum
collateral value test ("Collateral Value Test").
We will not satisfy the Collateral Value Test if (1) the aggregate amount of the outstanding letters of credit plus any other amounts
payable by us under the Reimbursement Agreement ("Aggregate Obligations") on March 20, 2006 is more than 60% of the appraised
value of aircraft collateral which secures our reimbursement obligation to GECC plus the fair market value of permitted investments
held as part of the collateral and (2) within 60 days thereafter, we have not either provided additional collateral to GECC in the form
of cash or aircraft or caused a reduction in the Aggregate Obligations such that the Collateral Value Test is satisfied. If we fail to
satisfy the Collateral Value Test on May 19, 2006, an event of default will
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