Delta offers $680 million new notes in exchange for unsecured debt, passthroughs

New York, Sept. 15 - Delta Air Lines Inc. said it has begun an exchange offer in which it is offering up to $680 million of new senior secured notes to the holders of some of its unsecured debt securities and enhanced passthrough certificates. A total of $2.6 billion of the existing securities are covered by the offer although only a maximum of $1.56 billion can be exchanged.

The Atlanta airline said the offer is part of its efforts to restructure out of court.

The new notes will be issued in three series, corresponding to short-term existing debt, intermediate-term existing debt and long-term existing debt.

Delta will issue up to $200 million of new 8% series A-1 senior secured notes due 2008 in exchange for short-term debt at the rate of $750 of new notes per $1,000 principal amount of existing debt. Included in this portion of the exchange are $238.273 million of passthrough certificates series 2000-1C and $91.782 million passthrough certificates series 2001-1C.

Delta will issue up to $230 million of new 10% series A-2 senior secured notes due 2011 in exchange for intermediate-term debt at the rate of $400 of new notes per $1,000 principal amount of existing debt. Included in this group are $27.5 million of 9¼% notes due 2007, $247.772 million of 10% notes due 2008, $499.34 million of 7.9% notes due 2009, $84.665 million of 10 1/8% debentures due 2010, $68.725 million of 10 3/8% notes due 2011 and $140.824 million of passthrough certificates series 2002-1C.

Delta will issue up to $250 million of new 12% series A-3 senior secured notes due 2014 in exchange for long-term debt at the rate of $350 of new notes per $1,000 principal amount of existing debt. Included in this group are $102.455 million of 9% debentures due 2016, $105.766 million of 9¾% debentures due 2012, $63.548 million of 9¼% debentures due 2022, $54.329 million of 10 3/8% debentures due 2022 and $924.895 million of 8.3% notes due 2029.

All amounts given exclude any securities held by Delta.

The new notes will be secured by a pool of collateral consisting of some unencumbered aircraft, flight simulators and flight training equipment with an aggregate appraised current market value of $1.3 billion.

The A-1 notes will amortize beginning in 2006, the A-2 notes beginning in 2009 and the A-3 notes beginning in 2012.

The exchange is subject to conditions including:

* Delta having decided that there are anticipated annual cost savings sufficient for it to achieve financial viability by way of an out-of-court restructuring, including reduction of pilot costs (before employee reward programs) of at least $1 billion annually by 2006 and reduction of other costs of at least $1.7 billion annually by 2006 (in addition to the $2.3 billion of annual cash savings compared to 2002 expected to be achieved by the end of 2004 through previously implemented profit improvement initiatives);

* Delta having decided that it is advisable to consummate the exchange offer as part of a successful out-of-court restructuring;

* Delta receiving tenders of enough existing securities to result in the issuance of at least $612 million of new notes;

* No adverse legal and market developments.

The exchange runs through 5 p.m. ET on Oct. 14 unless extended.

Securities tendered can be withdrawn at any time.

The exchange is only being made to qualified institutional buyers.

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