Delta Air Lines Inc. went to the bond market on September 16, 2020, with a very large bond issue that, literally, flew out the door.[1] The total deal of $9,000 million was oversubscribed, below is the eight-year tranche tranche means a portion of the deal:

Amount: $3,500 million

Term: 8 years

Coupon: 4.000% paid annually

Principal: at maturity

Kd = 4.875%

Krf = Risk Free Rate: 0.69% = 69 basis points - September 16, 2020

Call Provision: After four years, at a redemption premium of 5% (meaning 105%)

[1] The deal went down, notwithstanding that Delta Air Lines' (NYSE:DAL) long-term credit rating was cut to junk status on Tuesday, March 24, 2020 due plummeting travel demand caused by the COVID-19 coronavirus pandemic. S&P Global Ratings downgraded Delta to "BB" from "BBB-" on expectations that the airline's 2020 credit metrics will be "much weaker" than 2019.

1. How many zero-coupon bonds are there in this bond structure? What is the current market price of the bond show work in spreadsheet? - 5

1. What is the present value of the stripped bond? What is the present value of the coupon strip? 5

1. What is the current yield on the bond? What is the yield to maturity of this bond? - 5

1. Calculate the credit spread, show calculation. What is market risk, generically, and in this case? 5

1. What is the Macaulay duration; what is the Modified duration of the bond? What does the Macaulay duration calculation tell you about the cash flows in relation to the intrinsic value of the bond? - 5

Show your calculations on the spreadsheet below.

1. Lets say that after four years, Delta Air Lines needs to restructure its bond debt. Assume that the financial impact of the Pandemic has been much worse than anyone could ever have imagined. As part of the restructuring, the required rate of return (Kd) on the Delta Air Lines bonds changes to 10% per annum, the annual coupon is cut by one-half to 2.00% and the principal payment due at the end of the term will only be 80% of what was expected. Any way investors count, this is a hit. What will the market price of the bond be in four years given the change in terms show your work below? - 5

Show your work in the spreadsheet below.

1. How many zero-coupon bonds are there in this bond structure? What is the current market price of the bond show work in spreadsheet? - 5

1. What is the present value of the stripped bond? What is the present value of the coupon strip? 5

1. What is the current yield on the bond? What is the yield to maturity of this bond? - 5

1. Calculate the credit spread, show calculation. What is market risk, generically, and in this case? 5

1. What is the Macaulay duration; what is the Modified duration of the bond? What does the Macaulay duration calculation tell you about the cash flows in relation to the intrinsic value of the bond? - 5

Show your calculations on the spreadsheet below.

1. Lets say that after four years, Delta Air Lines needs to restructure its bond debt. Assume that the financial impact of the Pandemic has been much worse than anyone could ever have imagined. As part of the restructuring, the required rate of return (Kd) on the Delta Air Lines bonds changes to 10% per annum, the annual coupon is cut by one-half to 2.00% and the principal payment due at the end of the term will only be 80% of what was expected. Any way investors count, this is a hit. What will the market price of the bond be in four years given the change in terms show your work below? - 5

Show your work in the spreadsheet below.