Bk End Is Drawing Closer....financing Announced
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coolflyingfool
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I went to college in a shorter time than UA being in BK. This is a true show of why BK laws need to be reworked even more. Just my thoughts................... I am happy for the employees that the light at the end of the tunnel is getting brighter, much brighter.
WorldTraveler
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I know you UA folks get real touchy about any criticism, but I might point out that UA's exit financing is all debt. No one was willing to put up equity in the company or at least UA decided they would rather have debt than equity. Not sure what the total amount of debt that UA is replacing but UA only had about $700M of unsecured debt going into bankruptcy. Even considering the reductions in pension liabilities (remember UA didn't walk free from those obligations since they issued the PBGC debt for about 15% of their obligations) and aircraft leases, UA's balance sheet is not going to be as light as so many here have predicted.
Sorry to rain on the parade but someone has to be the guardian of truth.
Sorry to rain on the parade but someone has to be the guardian of truth.
WorldTraveler said:
Upon emergence, UAL will have trimmed a few billion of secured debt, thru reductions of loan balances to aircraft market value plus the abandonment of some aircraft.
Equity? The PBGC and creditors will get plenty of equity in the new UAL. 😀
If, upon emergence, UAL looks strong, then UAL could make a public offering, getting some equity without inviting TPG or some other raider into the tent. LCC was able to sell some stock to the public. Dunno why anyone would give a third chance, but PT Barnum's oft-repeated quote may be appropriate.
WorldTraveler said:
I heard that Delta cancelled some pilot pensions. Hmmm, go worry about your airline you p.o.s.(itively unbelievable person). What's wrong WT? Sad that YOUR airline might not make it? I'd be worried too. Oh well, no big loss.
"No one was willing to put up equity in the company or at least UA decided they would rather have debt than equity."
I don't know anything about financing, still, I thought equity is what a person or institution own that is free from debt. How can someone be "willing to put equity in the company" does not make any sense. I don't get it. The way I understand UA got a loan, like I would get a cash loan, as opposed to a loan that would be secured by the equity that I might have on my house.
Below, I found this definition of EQUITY:
The residual value of a business or property beyond any mortgage thereon and liability therein.
Can any expert explain?
I don't know anything about financing, still, I thought equity is what a person or institution own that is free from debt. How can someone be "willing to put equity in the company" does not make any sense. I don't get it. The way I understand UA got a loan, like I would get a cash loan, as opposed to a loan that would be secured by the equity that I might have on my house.
Below, I found this definition of EQUITY:
The residual value of a business or property beyond any mortgage thereon and liability therein.
Can any expert explain?
Albatroz said:
I'm just a poster on USAviation.com, not an expert, but I'll take a stab at it.
When people talk about "equity" financing for UAL, they're talking about someone willing to invest fresh money in exchange for stock. Stock (unlike UAL's new debt) that would not require constant interest payments.
But as I posted above, plenty of equity will be distributed to creditors like the PBGC and other lenders who are taking a haircut - it's just that they aren't throwing in any more "new" money. They're getting equity because a portion of the UAL debt they hold is being discharged (cancelled). In bankruptcy, creditors often become involuntary equity owners.
B
B.O.B.
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Fly said:
He/She could be one of those kids who graduate a 4 year college in 1-2 years.
BigRed1
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WorldTraveler said:
From US Business News
Over the summer, United studied the possibility of augmenting the debt financing with a rights offering or minority private-equity investment. But those money-raising ideas appear off the table for now. "Equity capital has the effect of diluting the recoveries for both our creditors and employees, who typically end up owning equity in the reorganized company," Jake Brace, UAL's chief financial officer, said in a message to employees yesterday. "An all-debt financing package is simply a better deal for them."
James B. Lee Jr., vice chairman of J.P. Morgan Chase and a longtime banker to United, said when the airline steps out of court protection, it "will have very attractive leverage levels." Asked about the increased loan amount, Mr. Lee said, "whenever you're structuring a facility like this for a really big company going through a transition, it's always better to err on the side of more." Securing the facility will be "more than enough collateral," he said. As for the interest rate, "this is a very competitive rate in this industry, Mr. Lee said, noting that some recent airline financings have carried much higher rates.
United, the nation's second-largest airline by traffic, currently owes $1.3 billion on a syndicated debtor-in-possession loan co-led by J.P. Morgan and Citigroup. That facility's interest rate is LIBOR plus 425 basis points. After repaying that obligation and making other payments required to leave Chapter 11, UAL expects to have more than $3 billion in unrestricted cash. "We'll have more cash at exit than we've had in a very long time," said Mr. Brace, the CFO.
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I think Mr. Lee, Vice-Chairman of J.P Morgan Chase, knows a bit more than you do WT about debt restructuring. Just a guess though.
WorldTraveler
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Once again, Fly, you demonstrate that you are incapable of carrying on an intelligent conversation.... where's your humor, Dearie? or is it tied up in a wad along w/ your undies?
FWAAA,
Equity financing is a risk-taking initiative on an investors part that a company is capable of making a return on investment without the threat of having that risk collateralized. Generally, equity is not supported by collateral. Equity is ownership - free and clear of liens. That is why all of UA's original equity was wiped out during their bankruptcy filing, as was US', as likely will be DL and NW's.
Just a guess, Big Red, but I wouldn't REALLY expect that an executive at the lead underwriter of a $3B offering would tell you that UAL should have obtained more equity financing. He's a banker and has no interest in seeing UA gain any equity financing. Show me a quote from someone not connected w/ UA's case and in the reorganization business that says that UA's plan of reorganization is solid and I'll consider believing it. And it is not customary or the norm for employees to receive equity in a reorganized company. Holding out significant equity stakes for employees actually diminishes the likelihood that a company will be able to successfully reorganize. As in most things in life, limiting the options going into a problem will result in limited solutions coming out. With all due respect, you don't have any idea what my credentials are. You might be surprised with the credentials I have if you knew.
Here's what's really going on w/ UAL's plan or reorganization as I see it:
- UA is cutting 3/4 of a $B in aircraft lease payments - a pretty healthy cut.
- UA had about $750M of unsecured debt as of the debt of their filing - that was wiped out.
- UA is giving most of the equity in their new company to employees and creditors in the hopes that they will do better the 2nd time around than they did the first.
- UA terminated their pension plans which removed a net of about $5-7B of pension liabilities from their balance sheet but it came at the cost of giving the PBGC a note which means UA actually terminated about 80% of its previous unfunded pension liabilities.
- UA simply is not removing significant amounts of debt from its balance sheet other than via pension liabilities.
- UA will come out of bankruptcy with the 2nd highest costs in the industry - which will quickly become the highest costs after NW slashes its way back to viability. It is simply incredible that UA would be satisfied with being at a significant cost disadvantage coming out of bankruptcy. And the premium revenue argument simply doesn't work - less than 2% of UA's premium revenue comes from markets that are not also served by other airlines.
What UA has done in bankruptcy is slash its employee costs to some of the lowest in the industry, making it virtually impossible to cut them further should problems occur if the future.
I will say no more on the viability of UA's reorganization (for at least a week anyway) but I simply do not believe UA has done what is necessary for them to be viable. I predict with 70% certainty that UA will be back in bankruptcy within 3 years of emerging from bankruptcy unless there are significant components of their plan of reorganizaton that are other than what I have addressed here.
You are all now free to disagree with me. Fly, in your case, you may call names and find whatever you think casts stone since that is all you are capable of doing. The root issue of UA's reorganization is the topic at hand and you are invited to intelligently discuss it if you can.
FWAAA,
Equity financing is a risk-taking initiative on an investors part that a company is capable of making a return on investment without the threat of having that risk collateralized. Generally, equity is not supported by collateral. Equity is ownership - free and clear of liens. That is why all of UA's original equity was wiped out during their bankruptcy filing, as was US', as likely will be DL and NW's.
Just a guess, Big Red, but I wouldn't REALLY expect that an executive at the lead underwriter of a $3B offering would tell you that UAL should have obtained more equity financing. He's a banker and has no interest in seeing UA gain any equity financing. Show me a quote from someone not connected w/ UA's case and in the reorganization business that says that UA's plan of reorganization is solid and I'll consider believing it. And it is not customary or the norm for employees to receive equity in a reorganized company. Holding out significant equity stakes for employees actually diminishes the likelihood that a company will be able to successfully reorganize. As in most things in life, limiting the options going into a problem will result in limited solutions coming out. With all due respect, you don't have any idea what my credentials are. You might be surprised with the credentials I have if you knew.
Here's what's really going on w/ UAL's plan or reorganization as I see it:
- UA is cutting 3/4 of a $B in aircraft lease payments - a pretty healthy cut.
- UA had about $750M of unsecured debt as of the debt of their filing - that was wiped out.
- UA is giving most of the equity in their new company to employees and creditors in the hopes that they will do better the 2nd time around than they did the first.
- UA terminated their pension plans which removed a net of about $5-7B of pension liabilities from their balance sheet but it came at the cost of giving the PBGC a note which means UA actually terminated about 80% of its previous unfunded pension liabilities.
- UA simply is not removing significant amounts of debt from its balance sheet other than via pension liabilities.
- UA will come out of bankruptcy with the 2nd highest costs in the industry - which will quickly become the highest costs after NW slashes its way back to viability. It is simply incredible that UA would be satisfied with being at a significant cost disadvantage coming out of bankruptcy. And the premium revenue argument simply doesn't work - less than 2% of UA's premium revenue comes from markets that are not also served by other airlines.
What UA has done in bankruptcy is slash its employee costs to some of the lowest in the industry, making it virtually impossible to cut them further should problems occur if the future.
I will say no more on the viability of UA's reorganization (for at least a week anyway) but I simply do not believe UA has done what is necessary for them to be viable. I predict with 70% certainty that UA will be back in bankruptcy within 3 years of emerging from bankruptcy unless there are significant components of their plan of reorganizaton that are other than what I have addressed here.
You are all now free to disagree with me. Fly, in your case, you may call names and find whatever you think casts stone since that is all you are capable of doing. The root issue of UA's reorganization is the topic at hand and you are invited to intelligently discuss it if you can.
He's a cheerleader.
Or maybe he works at KoolAid. (how's that?)Don't worry. I'm laughing at YOU right now. How's those pilot pensions you claimed wouldn't be touched?
Anyone notice how he slammed United for the last 2 years, then he tried to act all nicey-nice when it became apparant that we would emerge from BK (and Delta was entering), and now that no one buys his line of bs anymore, his feelings are hurt so he's slamming United again. Unbelievable. Why don't you go over to the "Delta Precancels Flights" thread and post why that is a good thing. 5 pages and you haven't chimed in with your usual "Delta is holy, United is evil" monologue.
You are correct: United's pay (at least for f/a's) is pretty low. Just not as low as Deltas.
Interesting article here WT:
The Five Dumbest Things on Wall Street This Week
4. Punchbowl
Delta (DAL:NYSE - commentary - research - Cramer's Take) really knows how to throw a party.
On Thursday, the air carrier launched nonstop service to Israel with an event at the Carter Center arena in its hometown of Atlanta. "Delta customers will be part of history when the airline starts the only nonstop service between the U.S. Southeast and Israel," the company said in an accompanying press release.
But hold the streamers. After raising the roof with his big Tel Aviv service plans, CEO Gerald Grinstein turned once more to his favorite subject: cost-cutting. He said Delta is prepared to use bankruptcy court to get $325 million worth of givebacks from its pilots, the AP reported.
Of course, this isn't the first talk of pay cuts from Grinstein. Delta's pilots have already taken a 32% pay-and-benefit cut, in a deal arranged last fall as Delta was struggling to stay afloat. That agreement saved the airline $1 billion in annual costs but couldn't keep Delta out of bankruptcy. Delta filed for Chapter 11 protection on Sept. 15, pledging to sharply cut back its operations and emerge as a sleeker player in just two years.
Even before Grinstein's latest threat, the pilots were feeling the pain. "The bottom line is that our original contract has already been cut by half, from $2 billion annual value to $1 billion," one Delta pilot wrote last month in response to this column's kudos to Grinstein for cutting his own pay. "Who should really be given the credit for having given?"
That said, even after last year's cutbacks, the pilots' numbers may just be too big for an ax-swinger like Grinstein to overlook. "Just three months before the Sept. 11, 2001, terrorist attacks, Delta signed a five-year labor contract with its pilots -- boosting them to the top of the industry," the Atlanta Journal-Constitution reported in June 2004. "The pilot pay gap widened further after American, United and US Airways, which also filed Chapter 11, won deep cuts from most of their workers."
Sounds like festive times ahead for everyone.
Dumb-o-Meter score: 75. Even if Delta's turnaround doesn't work, we see a promising career for Grinstein in party planning.
The Five Dumbest Things on Wall Street This Week
4. Punchbowl
Delta (DAL:NYSE - commentary - research - Cramer's Take) really knows how to throw a party.
On Thursday, the air carrier launched nonstop service to Israel with an event at the Carter Center arena in its hometown of Atlanta. "Delta customers will be part of history when the airline starts the only nonstop service between the U.S. Southeast and Israel," the company said in an accompanying press release.
But hold the streamers. After raising the roof with his big Tel Aviv service plans, CEO Gerald Grinstein turned once more to his favorite subject: cost-cutting. He said Delta is prepared to use bankruptcy court to get $325 million worth of givebacks from its pilots, the AP reported.
Of course, this isn't the first talk of pay cuts from Grinstein. Delta's pilots have already taken a 32% pay-and-benefit cut, in a deal arranged last fall as Delta was struggling to stay afloat. That agreement saved the airline $1 billion in annual costs but couldn't keep Delta out of bankruptcy. Delta filed for Chapter 11 protection on Sept. 15, pledging to sharply cut back its operations and emerge as a sleeker player in just two years.
Even before Grinstein's latest threat, the pilots were feeling the pain. "The bottom line is that our original contract has already been cut by half, from $2 billion annual value to $1 billion," one Delta pilot wrote last month in response to this column's kudos to Grinstein for cutting his own pay. "Who should really be given the credit for having given?"
That said, even after last year's cutbacks, the pilots' numbers may just be too big for an ax-swinger like Grinstein to overlook. "Just three months before the Sept. 11, 2001, terrorist attacks, Delta signed a five-year labor contract with its pilots -- boosting them to the top of the industry," the Atlanta Journal-Constitution reported in June 2004. "The pilot pay gap widened further after American, United and US Airways, which also filed Chapter 11, won deep cuts from most of their workers."
Sounds like festive times ahead for everyone.
Dumb-o-Meter score: 75. Even if Delta's turnaround doesn't work, we see a promising career for Grinstein in party planning.
WorldTraveler said:
I agree with many of your points, except for this one. I predict that UAL will have trimmed a substantial amount of aircraft debt as that debt is reduced to the market value of the underlying collateral.
Secured debt is subject to compromise - ever heard the bankruptcy term "cram-down?" I'm guessing that UAL's BK lawyers have taken advantage of that provision to trim its secured debt.
UnitedChicago
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What happened to the kindler, gentler WT? BK's a b itch ain't it WT?
Haven't you learned that the criticism you put forth can come back to bite? We all live in glass houses.
What's not to say Delta won't go all debt on their exit?
Haven't you learned that the criticism you put forth can come back to bite? We all live in glass houses.
What's not to say Delta won't go all debt on their exit?
