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Judge approves Delta's bankruptcy financing

A federal bankruptcy court judge Friday approved Delta Air Lines's request to borrow $2.05 billion from its creditors in a move that will help the carrier operate, following its bankruptcy filing earlier this week.
/ Source: Reuters

A federal bankruptcy court judge Friday approved Delta Air Lines's request to borrow $2.05 billion from its creditors in a move that will help the carrier operate, following its bankruptcy filing earlier this week.

The third-largest U.S. airline filed for Chapter 11 bankruptcy protection on Wednesday, after losing an uphill struggle with soaring oil prices and tough competition from low-cost rivals. Northwest Airlines, the No. 4 U.S. carrier, also filed for bankruptcy protection the same day.

In a post-petition hearing for Delta at the U.S. Southern District Court of New York on Friday, Judge Prudence Carter Beatty gave interim approval for debtor-in-possession financing of $1.7 billion from General Electric and $350 million from American Express Co .

"I think it's remarkable we were able to get this kind of financing with the amount of collateral we had," Tim Coleman, senior managing director at private equity firm Blackstone, said during the hearing on Friday.

Blackstone, Delta's financial advisor through its restructuring, arranged its DIP financing. "Given the context, this is one of the best DIPs we've ever done," Coleman said.

American Express on Friday said it would provide the money, but Delta would have to repay the $500 million that American Express Travel Related Services Co. advanced in the fourth quarter of 2004 and first quarter of 2005.

The money was a prepayment to Delta for the purchase of SkyMiles reward points.

While the judge's approval came as no surprise to analysts and experts, it does make things easier for Delta. "It is absolutely necessary for any company in bankruptcy to have access to cash so it can continue to do business with its vendors," Robert Barnes, bankruptcy specialist and partner at law firm Allen Matkins, said in an interview.

"Vendors need to know they'll get paid, and only then will they continue to do business with the debtor," he said.

Northwest Airlines , the fourth-largest U.S. carrier, also filed for bankruptcy protection on Wednesday, joining United Airlines and US Airways , who have been operating under Chapter 11.

Both carriers were trying to cut costs aggressively before they filed for Chapter 11.

Delta pilots suffered what may be the first of many blows for the airlines' employees as the Atlanta-based carrier said it would send a letter to more than 3,500 pilots in nonqualified pension plans, telling them it would not pay their October pension payments.

"Delta believes that nonqualified plans are pre-petition obligations which we now are prohibited from paying as part of the bankruptcy process," a Delta spokeswoman said.

Nonqualified plans are usually for higher-paid executives and employees whose full salaries are ineligible for funding through companywide qualified plans. Unlike qualified plans, nonqualified plans cannot be advance-funded or insured.

Both airlines have said they are operating normally after their nearly simultaneous bankruptcy filings, which analysts said were partly driven by the threat of a tougher bankruptcy law scheduled to take effect next month.

The airlines will also work out in bankruptcy court how much to pay creditors.

Delta's bonds with a 10 percent coupon due in 2008 fell to 16 cents on the dollar, down one cent from Thursday, according to MarketAxess.