Delta raised $9 billion, backed by its SkyMiles program. They broke SkyMiles into three new separate Cayman Islands companies: SkyMiles Holdings, SkyMiles IP, and SkyMiles IP Finance. The full sausage of the deal has been filed in an SEC 8-K.
I found this one clause interesting:
Delta and SMIP are also prohibited from substantially reducing the SkyMiles program business or modifying the terms of the SkyMiles program in a manner that would reasonably be expected to materially impair repayment of the SkyMiles Financing obligations (described as a “Payment Material Adverse Effect” in the Indenture and the New Credit Facility), and Delta and its subsidiaries are prohibited from changing the policies and procedures of the SkyMiles program in a manner that would reasonably be expected to have a Payment Material Adverse Effect or operating a competing loyalty program.
Lenders want to make sure they’re paid back. That means they want to ensure customers will keep spending on Delta credit cards, and keep buying miles. In order for that to happen, the SkyMiles program has to remain attractive to members.
However the limits placed on what Delta can too only preclude their making changes that would “reasonably be expected to materially impair repayment” and anything that Delta does to change the program is going to be something they – in their reasonable business judgment – will increase the program’s cashflow, even if it’s at the expense of members.
Of course the limits here aren’t just on devaluing the program, there’s also a non-compete clause. Delta can’t start a competing program, move customers over to it, and no longer have the SkyMiles income stream that’s dedicate to repayment.
Clauses like this aren’t unique. Credit card companies have clauses in their agreements to limit devaluation but in practice those are usually vague, and there are usually strong incentives not to exercise them (as a nuclear option). There have been some recent agreements, over the past couple of years, that are tighter however.
In the past credit card issuers have been involved in program change discussions. There have been some changes softened because of issuer demands, although the amount of influence here has varied by airline and bank (post-losing Costco American Express’ leverage over Delta was not strong).
I don’t expect the language in the note to protect consumers, although the long-term interests of consumers and lenders may actually align.