Richard B. Hirst: NWA bond debt is solid and benefits everyone

Following, some facts to correct misconceptions about the 1992 deal.

By RICHARD B. HIRST

Last update: November 11, 2008 - 6:20 PM

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On Oct. 30, the Star Tribune reported that certain elected officials "raised concerns Wednesday about ... the $230 million in bond debt that Northwest owes the Metropolitan Airports Commission (MAC)." Many Minnesotans, including some elected officials, believe mistakenly that if that debt were repaid, the money would go to the state. As the Northwest executive primarily responsible for arranging this public financing 17 years ago and as the current general counsel of Delta Air Lines, I would like to set the record straight on this point.

1There were no taxpayer dollars from the state of Minnesota and no state loans involved in the financing. The MAC sold airport revenue bonds to the public (much the same way it does to build airport terminals), and the $270 million in revenue from those bonds was provided to Northwest. In exchange, Northwest agreed to repay the bonds, to build a maintenance base and other facilities in Minnesota, and to maintain a hub, jobs and headquarters here. While the MAC would be financially responsible to the bondholders if Northwest were to default on its payments, the MAC is just the financing conduit between Northwest and the bondholders. Northwest has never missed a payment in 16 years, even in bankruptcy.

2The 1992 deal was a bargain that helped both sides -- with significant benefits going to Minnesota. Northwest's prior management had decided to locate the maintenance base elsewhere because other states offered low-cost facilities already in existence, and Minnesota's elected officials wanted us to change that decision. Northwest needed capital, and the MAC could sell bonds at 8.9 percent, a rate which Northwest could afford. That became the linchpin of the deal.

3Currently, $245 million is owed to the private parties who own the bonds. If the bond debt were repaid early, the money would go to the bondholders -- not to the state, the MAC or taxpayers. Given that the bonds currently pay above-market interest and that Northwest's payment obligation is fully collateralized with assets recently valued at about 140 percent of the face amount, it's not in the bondholders' best interest for the bonds to be retired before they mature in 2022.

Early repayment of the MAC bonds would benefit no one -- not Delta, not the bondholders, and certainly not Minnesota. The Minnesota Legislature and the MAC cut a good deal in 1991. Northwest has made the Minneapolis-St. Paul International Airport one of the largest and most successful hubs in the United States, while employing thousands of people in good jobs. We should be working together to ensure the long-term growth of the hub and the continued employment of thousands of people in Minnesota.

Richard B. Hirst, Delta Air Lines general counsel, is the former general counsel for Northwest Airlines.

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