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28 Jun 2010
$450 million of pass through certificates rated
New York, June 28, 2010 -- Moody's Investors Service assigned a Baa2 rating to the $450 million
of Class A Pass Through Certificates of the 2010-1 Pass Through
Trust (the "Certificates") to be issued by Delta Air Lines,
The Class A Equipment Notes ("Notes") issued by Delta and
acquired with the proceeds of the Certificates will be the primary assets
of the Pass Through Trust. The Certificates' proceeds will
fund the refinancing of twenty-two aircraft presently financed
by Delta's 2000-1 Enhanced Equipment Trust Certificates ("EETC's"),
which mature in November 2010 and two Boeing B-777-200LR's
delivered in March 2010.
The transaction documentation provides for the possible issuance of one
additional subordinated tranche of certificates at any time. The
subordination provisions of the inter-creditor agreement provide
for the payment of interest on the Class B Certificates, if issued,
before payments of principal on the Class A Certificates. Amounts
due under the Certificates will, in any event, be subordinated
to any amounts due on the Class A Liquidity Facility ("Liquidity
Facility"), which is sized to provide for three consecutive
semi-annual interest payments due the respective Certificate holders.
The ratings of the Certificates consider the credit quality of Delta as
obligor under the Notes, Moody's opinion of the collateral protection
of the Notes, the credit support of the Liquidity facility,
and certain structural characteristics of the Notes such as the cross-collateralization
and cross-default provisions and the protections of Section 1110
of Title 11 of the United States Code (the "Code"). The assigned
rating reflects Moody's opinion of the ability of the Pass Through Trustees
to make timely payment of interest and the ultimate payment of principal
at a date no later than the Final Legal Distribution date of January 2,
2020. Moody's believes that having two 2010 vintage B-777LR's
in the collateral pool increases the likelihood that Delta would affirm
its obligations under each of the Notes if it was to file for bankruptcy
because of the structure's cross-default feature.
Additionally, the B-757 and B-767 tail numbers in
this collateral pool represent the younger vintages of these aircraft
types in Delta's fleet. The cross-collateralization
of the aircraft securing each equipment note underlying the transaction
enhances the potential recovery for investors in the event of a default
on the Certificates or of the rejection of the aircraft by Delta in the
event of a bankruptcy filing and pursuant to the provisions of the Code.
Any combination of future changes in the underlying credit quality or
ratings of Delta, unexpected material changes in the value of the
aircraft pledged as collateral, and/or changes in the status or
terms of the liquidity facilities or the credit quality of the liquidity
provider could cause Moody's' to change its ratings of the Certificates.
General Structure of the Series 2010-1 EETC
The proceeds of the Certificates will initially be held in escrow and
deposited with the Depositary, The Bank of New York Mellon (short-term
rating of P-1), until the issuance of each of the twenty-four
Notes. The interest on these funds will be sufficient to pay accrued
interest on the outstanding Certificates during the Deposit Period.
The collateral pool consists of 24 Boeing aircraft, all owned by
Delta: ten B737-800's, nine B757-200's,
and three B767-300ER's presently pledged to the 2000-1
EETC and two B777-200LR's delivered new in March 2010.
The Certificates issued to finance the aircraft are not obligations of,
nor are they guaranteed by Delta. However, the amounts payable
by Delta under the Notes will be sufficient to pay in full all principal
and interest on the Certificates when due. The Notes will be secured
by a perfected security interest in the aircraft. It is the opinion
of counsel to Delta that the Notes will be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code. Scheduled
interest payments on the Certificates will be supported by the Liquidity
Facility sized to pay up to three respective consecutive semi-annual
interest payments in the event Delta defaults on its obligations under
the Notes. The liquidity facilities do not provide for payments
of principal due, nor interest on the Certificate proceeds held
in escrow during the Deposit Period. Natixis S.A.
via its New York Branch (Moody's short-term rating of P-1)
will provide the Liquidity Facility. The liquidity provider has
a priority claim on proceeds from liquidation of the aircraft or the Notes
and other Trust collateral ahead of any of the holders of the Certificates
and is also the controlling party following a default under Notes.
The ratings of the 2010-1 Certificates benefit from the cross-collateralization
of the Notes, a feature which Moody's believes can enhance recovery
in the event of a default. The structure provides that for each
aircraft sold, the excess of sale proceeds above the payoff of the
related equipment note are made available to cover shortfalls due under
any other equipment note related to the sale of any other aircraft.
Importantly, all excess proceeds are retained until the settlement
at maturity of the last of the 24 equipment notes or the indentures are
Moody's considers the number of aircraft and the number of different aircraft
models that comprise the collateral pool when assessing the benefit of
a cross-collateralized EETC. At 24 aircraft and four models,
the collateral pool is sizeable and diverse. That the included
models are integral to Delta's short- and long-haul
routes and are mostly the younger equipment in its combined mainline fleet
supports the likelihood of affirmation by Delta of its obligations under
the related equipment notes in the event of a bankruptcy filing by Delta,
thus minimizing the probability of the cross-collateralization
benefit being called upon by creditors over the life of the transaction.
Nevertheless, Moody's believes that the inclusion of the two
777's increases the value of the cross-collateralization
feature of this EETC because of these two aircraft's large share
of the aggregate appraised value of the aircraft pool.
The principal methodology used in rating Delta is Moody's Global
Passenger Airlines, published in March 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating Delta can also be found in the Rating
Methodologies sub-directory on Moody's website.
The last rating action was on June 3, 2010 when Moody's affirmed
its ratings of Delta and changed the ratings outlook to stable from negative.
..Issuer: Delta Air Lines, Inc.
....Senior Secured Enhanced Equipment Trust,
Delta Air Lines, Inc., headquartered in Atlanta,
Georgia, is the world's largest airline, providing scheduled
air transportation for passengers and cargo throughout the U.S.
and around the world.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's assigns Baa2 rating to Delta Air Lines 2010-1A EETC
No Related Data.
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