Delta just grabbed $5 billion in liquidity.
Delta on Monday borrowed $3.5bn through the bond market with a five-year deal secured against the company’s assets, including its aircraft routes and the slots it hold at airports such as Heathrow in London or John F Kennedy in New York. Delta also raised $1.5bn through a three-year loan, secured against the same assets.
The company has drawn down on a $3bn lending facility with a group of banks and expects to receive some $5.4bn to support its payroll from the US government’s giant stimulus package. Delta also plans to apply this week for $4.6bn from a second tranche of secured loans from the government, but the company has until September to decide whether to tap the funds.
The airline hasn’t had difficulty accessing liquidity. This calls into question why they needed a government bailout in the first place. In fact the half of the bailout that’s strictly loans Delta hasn’t even decided to take.
What’s not often pointed out, though, is that the liquidity Delta and other major companies are securing is itself part of another federal bailout program: from the Federal Reserve, “defibrillat[ing] bond markets with an unprecedented lending program.”
Carnival, Airbnb, Ford and now Delta have raised billions from debt markets after the Federal Reserve made easy credit available and drove down interest rates. In fact, Delta has touted their investment grade debt rating in the past and S&P Global downgraded their debt to junk.
The Fed is actually now buying corporate bonds of formerly investment grade companies. And when the Fed does this, they free up private capital to lend elsewhere and the market prices rates lower than companies would have to pay without this government program.
And this is bad for exactly what reason?
The cash the Feds have handed goes to pay airline employees. Some — including me — would say this was too generous. I think the employees should have been required to sacrifice something, as they’re getting a much better deal than tens of millions of other American workers who aren’t getting paid now.
But you seem to also have a problem with “the loans”? Why? And isn’t this INSANE for a guy who makes a living off this industry? Do you really think this crisis of almost biblical proportions for the airline industry doesn’t merit the government trying to provide SOME assistance? Isn’t that what government is FOR? Heck, the government is almost certainly going to get repaid and will probably make good money on the equity interest they are getting for free from the loans.
@ Gary — All of the bailout money always goes to the wealthy off the back of savers. This has been America’s great Fed scam from the last 12 years now. Maybe we should have elected Bernie Sanders after all. NO MORE BAILOUTS.
Congress hastily acted to look like they were doing something. That’s a bailout. The Fed taking action to stimulate markets is not a bailout but a proactive attempt at manipulating market conditions. While there is risk on the govt side this is hardly a bailout.
@chopsticks, it’s certainly not what I would define as a proper purpose of government, at any level. It imposes costs on taxpayers that haven’t agree to bear them. All to the benefit of a select, politically-well-connected group. Bailouts are always, unequivocally, a bad idea.
To Gary’s point, why does anyone presume that Delta (or any other corporation) need a bailout, given the capital that they’ve already been able to raise via private lenders?
This has been said before but bears repeating:
Corporate leaders are capitalists in the good times and socialists when times get tough.
I have not see one top corporate executive giving his/hers astronomical salaries to help bail out their “lower” paid employees before the FED bailout. I would think that would be a first step before any handouts. But that’s my view point on this. Who will be repaying the trillions of our government debts that is increasing by a minute without us the US citizens approval?
“In fact the half of the bailout that’s strictly loans Delta hasn’t even decided to take.”
No airline is keen on the requirements of that point: Allowing the government to buy back stock in their company. Why allow another bulk stock owner when you can get the cash another way?
The best capitalists are experts at finding loopholes and Plan Bs.
That’s as bad as the Lakers, Ruth Chris, Potbelly, and others tapping the PPP. At least they had to give the money back. The airlines know that they don’t have to be good managers because the government will bail them out. I’ll bet all the employees of Pan Am and all the other airlines that went belly up had enjoyed all the “free” money the government is handing out these days.
Gary – love VFTW but this post is misleading. The Fed hasn’t actually bought any corporate debt yet, either directly from companies in the form of bond issuances or on the secondary market. The funds received by Delta are (as you mentioned) secured debt from private investors, the fed has no money involved, and it’s not a “bailout”
What the fed plans on doing is buying investment grade or “fallen angel” securities as necessary to ensure normal market function, which is vital to enabling companies to sell and investors to buy debt without relying on a government bailout. The fed may also buy bonds directly as part of an issuance, but that will need to be paid back by the company with interest at the prevailing market rate* (this part is still a bit unclear). The fed will be assuming credit risk, but would also benefit as the bonds are paid off. To date, the Fed has spent no money on this, and the announcement Itself seems to have restored function to the markets.
If anybody is being bailed out here, it’s bond holders who can now potentially sell high-risk debt to the Fed, not the companies currently issuing bonds.
@Marua – “I have not see one top corporate executive giving his/hers astronomical salaries to help bail out their “lower” paid employees before the FED bailout.”
Oscar Munoz and Scott Kirby of United have given up their salaries entirely through the month of June. I know they probably still have other non-salary compensation so they could “do more” but I think it’s pretty false to say that “not one” C-suite employee has done anything to reduce their own payroll costs during the crisis.
I want to see some strings attached to that money Like buying Boening instead of Airbus. Boeing needs help big time as do the employees down stream from the manufacturer.