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29 Jan 2007

Hedge Funds Examine Airline Merger

Delta Air Lines is planning a reorganization of its business plan, including a possible merger that is said would improve service, but is being scrutinized by hedge fund shareholders.

US Airways has offered to buy Delta in an $8.4 billion bid, and Delta has the option to sell before Feb. 7th when the U.S. Bankruptcy Court for the Southern District of New York holds a hearing on Delta’s disclosure statement.

The group of unsecured creditors that are questioning the merger is made up largely of hedge funds holding billions of dollars in claims. The hedge fund team said in a statement that they "look forward to analyzing carefully and discussing with Delta the proposed plan and the assumptions upon which it is based however..... it expects Delta to consider alternatives to its proposed stand alone chapter 11 plan to ensure that creditor recoveries are maximized."

The Unofficial Committee of Unsecured Claimholders includes 18 hedge funds and investment management companies that hold $2.35 billion worth of creditors’ claims against Delta and its subsidiaries. The hedge fund team was formed in Dec 06 and is represented by Paul, Weiss, Rifkind, Wharton & Garrison.

On Jan. 10, the hedge fund group called on Delta to allow US Airways to postpone the Feb. 7 disclosure hearing so that the proposal could be fully evaluated. Other creditors, such as those on the unofficial committee, could pressure larger creditors to force Delta's hand. If approved, the statement will be submitted to a vote of all creditors.

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