Delta hopes to obtain credit

Delta Air Lines Inc., which filed for bankruptcy protection last month, is in talks to obtain $300 million in letters of credit from Merrill Lynch & Co. as a part of its credit-card processing agreement with U.S. Bank.

U.S. Bank, a Cincinnati-based unit of U.S. Bancorp, processes airline ticket purchases by Delta customers using Visa and MasterCard credit cards. U.S. Bank processed 48 percent, or $6.6 billion, of those purchases last year, according to papers filed with the U.S. Bankruptcy Court in New York.

The letters of credit would free $300 million that U.S. Bank holds in a reserve in the event Delta cancels flights and customers need refunds. The reserve ranges from an estimated $425 million to $825 million during the year. The airline has said it needs to preserve as much cash as possible while it restructures.

"The credit support provided by the letter of credit would enable Delta to receive up to $300 million of cash that would otherwise be retained by U.S. Bank," Delta lawyer John Fouhey of Davis Polk and Wardwell said in court papers. "The incremental liquidity that would be made available would be of substantial assistance in managing the business."

Delta, which operates a hub in Salt Lake City, filed for bankruptcy on Sept. 14, listing $21.6 billion in assets and $28.3 billion in debt in court papers, making it the ninth-largest bankruptcy of all time by asset size.

"It underscores a couple of things," Helane Becker, a securities analyst with Benchmark Co. in New York, said of the pending agreement with Merrill. "One, that Delta can attract capital with their business plan. And two, they can free up some cash as they go into the skinny part of the year for all airlines. It would be a great deal for Delta."

Merrill spokesman Mark Herr declined to comment.

Delta, the third-biggest U.S. carrier, is asking Bankruptcy Judge Prudence Carter Beatty for permission to pay New York-based Merrill, the biggest U.S. securities firm, certain fees in connection with the talks. The airline didn't disclose how much it is seeking to pay.

Beatty authorized Delta last week to borrow as much as $2.2 billion from General Electric Co.'s commercial finance unit, Morgan Stanley and American Express Co. Delta is using the funds to repay part of its debt and pay some operating expenses.

U.S. Bank signed a two-year extension to remain Delta's credit card processor last month. The agreement was to expire Sept. 30.

The airline also asked for court permission to make roughly $2 million in debt service payments to the City of Chicago and the Massachusetts Port Authority to keep using its facilities at O'Hare International Airport and Boston's Logan International Airport.

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