A faction of Delta Air Lines creditors wants the airline to start the paperwork on a possible merger in light of US Airways’ fattened hostile buyout bid.
The new US Airways bid “represents a significant premium to the valuation Delta itself places on its stand-alone plan,” the creditor group said in a written statement.
The self-named “unofficial committee” of unsecured creditors represents several hedge funds and other investors that have bought up about $2.3 billion of Delta’s bankruptcy claims.
It represents a potential rival camp to the court-appointed creditors committee —- made up of major suppliers, financial backers and others —- that is weighing US Airways’ offer against Delta’s stand-alone plan to exit Chapter 11 later this year.
While the unofficial group was already believed to be leaning toward US Airways’ cash-heavy merger bid, first announced in November, some industry analysts said Wednesday’s sweetened offer will win US Airways more creditor support.
If US Airways is able to woo creditors holding more than $5 billion in claims, “the stand-alone plan is toast, and I believe they’re already there,” said Roger King, an airline analyst with CreditSights, a securities research firm in New York.
But Delta management continues to fight the merger bid, arguing such a deal would face long odds of approval by federal regulators and create messy integration problems. A merger is also hotly opposed by many of the Atlanta airline’s workers and its political allies.
Delta’s creditors holding at least two-thirds of all claims must approve any plan of reorganization. That means any group representing at least one-third of Delta’s claims can block a plan.
“If they can’t confirm a plan, the judge will allow someone else to file a plan or Delta becomes forced to file a plan that would be accepted by creditors,” said Darryl Laddin, a bankruptcy attorney with Arnall Golden Gregory in Atlanta.
Delta has estimated that its creditors’ claims will total $15 billion. That would give the unofficial group about 15 percent of the voting weight.
The group called for Delta to agree to certain terms in US Airways’ bid, including opening its books, filing a merger application with the U.S. Department of Justice, and postponing a Feb. 7 bankruptcy court hearing on Delta’s stand-alone plan. US Airways put a Feb. 1 deadline on the new offer. “I think this is the most critical time between now and that hearing,” said Laddin.
Meanwhile, Delta’s official creditors committee —- which represents roughly half of all claims —- will also examine US Airways’ higher bid. Its options include filing an objection to Delta’s plan by a Jan. 25 deadline, pressing Delta to postpone the Feb. 7 hearing, or doing nothing.
The committee has remained mum about US Airways’ new bid.
Three of the nine members are suppliers Boeing, Coca-Cola and United Technologies. The federal pension agency also has a seat. Another member, Delta’s pilots union, backs an independent Delta. The four remaining members are bondholders or bond trustees that will be more likely to think like the members of the unofficial committee and back a merger plan, said King.
That increases the odds, he said, that US Airways will prevail or Delta will seek an alternative merger with Northwest or United. Reports on Wednesday said Delta has had talks with Northwest, which is also in Chapter 11, about a potential linkup when both carriers emerge.
King said a merger with Northwest may become Delta management’s Plan B because it might allow them to retain control and because the two route systems are more complementary.
“US Airways, I think they won the battle, but I don’t know if they won the war,” said King.