Bondholder activism: Delta in tense Chapter 11 negotiations
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Bondholder activism: Delta in tense Chapter 11 negotiations

Airline is courting controversy with creditors after abandoning leased aircraft.

“Delta’s financial problems are
severe, but by no means
Gerald Grinstein

Delta Airlines has thrown a spanner in the works of its Chapter 11 proceedings by rejecting some of its aircraft leases and abandoning the aircraft involved wherever in the world they happen to be. Chapter 11 has not been the smooth road for Delta initially expected by the market. At its very first creditor meeting in October, bondholders were startled to learn of Delta’s plans.

An ad hoc committee of secured creditors – holding more than $1.4 billion in Delta debt – have said that this violates the indenture of the bonds and also provisions of the bankruptcy code relating to financial backers of aircraft leases. The committee represents holders of pass-through trusts secured by the assets Delta is planning to abandon. The rejected leases are tied to 9.875% trusts due 2008.

According to the creditors’ committee, at least three of the aircraft in contention are in foreign jurisdictions and it might not be possible to get foreign governments’ permission to have them returned to the US.

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