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Weathering The Storm With Liquidity

14 July 2020 by jbchevrel

Delta Airlines (DAL) reported Q2 numbers today. A $3.9 billion adjusted pre-tax loss (excluding $3.2 billion of items directly related to the impact of COVID) was recorded for Q2, especially due to a more than $11 billion decline in revenue over the past 1 year, illustrating the staggering impact of the COVID on DAL business. The airline managed to reduce its average daily cash burn by more than 70% since late March to $27 million in the month of June. Total adjusted revenue was just $1.2 billion, down -91% versus the prior year. That was especially due to a system capacity reduction of -85% compared to the prior year. Liquidity is still present at the company, despite the very challenging environment. At the end of the June quarter, the company had $15.7 billion in liquidity. To date, the airliner has taken numerous measures to help preserve the liquidity. It raised nearly $15 billion in since early March, at a blended average interest rate of 5.5%, including the unsecured loan portion received under the CARES Act payroll support program. It extended maturities of $1.3 billion of borrowings under revolving credit facilities from 2021 to 2022. Adding to that, DAL is continuing to evaluate future financing options. They are eligible and submitted a non-binding Letter of Intent to the U.S Treasury Department for $4.6 billion under the CARES Act secured loan program. DAL CDS is relatively illiquid and is in no CDX index to date. On our marks, we see it wider by roughly +50bp on the day, closing at a mid of approximately 370bp on the 5y contract. For the order of magnitude, that is some +20bp above the CDX HY BB index level.