Delta Airlines 2006 Annual Report Download - page 94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The TLA, TLB and TLC each mature on the earliest of (1) March 16, 2008, (2) the effective date of a plan of reorganization in the Debtors’ bankruptcy cases
or (3) accelerations and termination of the obligations under such loans if an event of default occurs under the DIP Credit Facility, as more fully discussed
below. Prior to March 27, 2006, the TLA bore interest, at our option, at LIBOR plus 4.50% or an index rate plus 3.75%; the TLB bore interest, at our option,
at LIBOR plus 6.50% or an index rate plus 5.75%; and the TLC bore interest, at our option, at LIBOR plus 9.00% or an index rate plus 8.25%.
We may also request the issuance of up to $200 million in letters of credit under the DIP Credit Facility, which must be fully cash collateralized at all times
such letters of credit are outstanding.
Our obligations under the DIP Credit Facility are guaranteed by substantially all of our domestic subsidiaries (the “Guarantors”). We will be required to make
certain mandatory repayments of the DIP Loans in the event we sell certain assets, subject to certain exceptions. Any portion of the DIP Loans that is repaid
through either voluntary or mandatory prepayment may not be reborrowed.
The DIP Loans and the related guarantees are secured by first priority liens on substantially all of our and the Guarantors’ present and future assets (including
assets that previously secured the GE Pre-Petition Facility) and by junior liens on certain of our and our Guarantors’ other assets (including certain accounts
receivable and other assets subject to a first priority lien securing the Amex Post-Petition Facility described below), in each case subject to certain exceptions,
including an exception for assets that are subject to financing agreements that are entitled to the benefits of Section 1110 of the Bankruptcy Code, to the extent
such financing agreements prohibit such liens.
The DIP Credit Facility includes affirmative, negative and financial covenants that impose substantial restrictions on our financial and business operations,
including our ability to, among other things, incur or secure other debt, make investments, sell assets and pay dividends or repurchase stock.
The financial covenants require us to:
• maintain unrestricted funds in an amount not less than $750 million through May 31, 2006; $1.0 billion at all times from June 1, 2006, through
November 30, 2006; $750 million at all times from December 1, 2006, through February 28, 2007; and $1.0 billion at all times thereafter
(“Liquidity Covenant”);
• not exceed specified levels of capital expenditures during any fiscal quarter; and
• achieve specified levels of earnings before interest, taxes, depreciation, amortization and aircraft rent, as defined (“EBITDAR”), for successive
trailing 12-month periods through March 2008. During 2005, we were required to achieve increasing levels of EBITDAR, including EBITDAR of
$644 million for the 12-month period ending December 31, 2005. Thereafter, the minimum EBITDAR level for each successive trailing 12-month
period continues to increase, including $1.4 billion for the 12-month period ended December 31, 2006; $2.0 billion for the 12-month period ending
December 31, 2007; and $2.0 billion for each 12-month period ending thereafter. If our cash on hand exceeds the minimum cash on hand that we
are required to maintain pursuant to the Liquidity Covenant, then the EBITDAR level that we are required to achieve is effectively reduced by the
amount of such excess cash, up to a maximum reduction of $250 million from the required EBITDAR level.
The DIP Credit Facility contains events of default customary for debtor-in-possession financings, including cross-defaults to the Amex Post-Petition
Facility and certain change of control events. The DIP Credit Facility also includes events of default specific to our business, including if all or substantially
all of our flight and other operations are suspended for longer than two days, other than in connection with a general suspension of all U.S. flights, or if certain
routes and, subject to certain materiality thresholds, other routes, and slots and gates are revoked, terminated or cancelled. Upon the occurrence of an event of
default, the outstanding obligations under the DIP Credit Facility may be accelerated and become due and payable immediately.
On March 27, 2006, we executed an amended and restated credit agreement (the “Amended and Restated DIP Credit Facility”) with a syndicate of lenders,
which replaced the DIP Credit Facility in its entirety. The aggregate amounts available to be borrowed under the DIP Credit Facility are not changed by the
Amended and Restated DIP Credit Facility. However, under the Amended and Restated DIP Credit Facility, the interest rates on borrowings have been
reduced: the TLA bears interest, at our option, at LIBOR plus 2.75% or an index rate plus 2.00%; the TLB bears interest, at our option, at LIBOR plus 4.75%
or an index rate plus 4.00%; and the TLC bears interest, at our option, at LIBOR plus 7.50% or an index rate plus 6.75%.
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