Desperate Delta Airlines uses their SkyMiles frequent flier assets -- your personal data -- as collateral to borrow $9 billion

 THE  BIG  PICTURE:
Airlines need cash to survive the collapse in air passenger travel. They have sold stocks, sold bonds, conned the goobermint into giving them $25 billion,  borrowed from banks, sold their planes for cash and leased them back. Other than the goobermint bailout, the biggest way for airlines to raise cash has been  pledging frequent flier programs as loan collateral.

The miles earned by frequent fliers are a liability that the airlines owe to its customers. ... I never heard of this type of loan collateral until last month, but I learn something new every month. ... Delta Air Lines, United Airlines, and American Airlines have all done multi-billion-dollar borrowing deals using their loyalty programs'  "intellectual property" as loan collateral.

Delta Airlines separated their SkyMiles frequent flier program into two parts. The liabilities are the travel miles earned -- they keep those. The SkyMiles assets are Delta frequent fliers' personal data. So, if you are a Delta frequent flier, YOUR personal information was part of their $9 billion loan collateral last month.  Legal?  Yes.   Desperation?  Yes.  

I'll focus on Delta Airlines simply because I just published an article about their third quarter 2020 passenger revenues being down an amazing -83%:
 Domestic flights: -79%                        

Across the Atlantic: -94%                    

Across the Pacific: -91% 

Latin America: -86%

Delta stockholders are stuck with all the liabilities of their frequent flier  program (travel miles earned) plus the new $9 billion of debt. The other options were praying for another goobermint bailout  ... or running out of cash and wiping out Delta shareholders in bankruptcy court.


SUMMARY:
Airlines make lots of money on their loyalty programs by selling personal data, and access to their customers, to other companies. One loyalty program actually trades on a stock exchange: Smiles Fidelidade SA (SMLS3) trades on the Brazil Novo Mercado -- it is the loyalty program of the Brazilian low-cost GOL Airlines.

The Delta loan collateral is their SkyMiles frequent fliers program personal and marketing data, wanted by other corporations, such as as those offering credit cards. American Express is Delta’s biggest partner in SkyMiles, with a “co-branded credit card relationships,”, the Delta SkyMiles American Express Card.  A new credit-card customer has a high lifetime value for American Express, who is willing to pay to get access to SkyMiles members' data.  That’s the money-making part of the SkyMiles program.

Delta's “Loyalty program deferred revenue” --- the travel miles earned but not yet redeemed, in Q3 2020, were a net  $7.1 billion -- a Delta liability. SkyMiles members can redeem their miles and use them as “currency" to buy tickets, upgrades to existing tickets, or products from marketing partners.

Income generated by SkyMiles, from marketing programs with other companies, was $2.9 billion for the first nine months of 2020 ( “passenger revenue” of  $731 million, plus “other revenue” of $2.17 billion).


DETAILS:
Intellectual property (IP) of value includes SkyMiles member profile data, such as name, mailing address, email address, phone numbers, communication and promotion opt-ins, payment-related information, customer flight-related experience, total miles balance, third party engagement history, accrual and redemption activity of travel miles, member status (Medallion, Gold Medallion, etc.), and SkyMiles account number.  

The IP also includes SkyMiles co-branding and similar agreements with marketing partners to market their products to SkyMiles members, who they know well based on the data they have on them from the SkyMiles program.

Delta set up complicated corporate entities, including a Delta subsidiary called SkyMiles IP (SMIP), incorporated in the Cayman Islands, plus Special Purpose Vehicles (SPVs), and a series of Holding Companies. there was a 154-page term loan agreement.

When Delta started the process of raising money backed by SkyMiles as collateral, there was so much demand that Delta upsized the originally floated amount of the package ($6.5 billion) to $9 billion, according to Delta’s September 17 SEC filing. The $9 billion package is:
   $3.0 billion term loan from several banks
    $2.5 billion in senior secured five-year notes with a coupon of 4.5%;
    $3.5 billion in senior secured eight-year notes with a coupon of 4.75%.

Delta has a credit rating of “BB” (junk), but the 4.75% yield attracts people like a pile of garbage attracts flies. They must assume the goobermint will not let Delta go bankrupt.

Barclays Bank as administrative agent, and US Bank National is the “Collateral Administrator” for the $3 billion loan. They will likely sell the loan to investors, probably as a collateralized loan obligation (CLO).