- Sep 12, 2002
- 98
- 1
December 09, 2003
United exit financing pact near: sources
(Reuters) — United Airlines, still hoping for a first-half 2004 emergence from bankruptcy, is close to lining up about $2 billion in exit financing commitments from three institutions, sources familiar with the matter said on Tuesday.
Co-arranging the loan, which would be contingent upon winning a loan guarantee from the federal government, will be Citigroup and J.P. Morgan Chase, sources said
"The papers are not signed yet, but the details are almost completely agreed," said one source involved in the discussions, who asked not to be identified.
United, a unit of UAL Corp., filed the biggest bankruptcy in aviation history exactly a year ago. While it is still geared toward getting out of bankruptcy in the spring of next year, some big factors still need to be ironed out, including potential Congressional action to address about $4.8 billion in underfunded pensions through 2008.
Exit financing provides a liquidity cushion for a company as it emerges from bankruptcy. Those financing discussions are soon to wrap up, sources said, even though the pension outcome remains in doubt as lawmakers approach the holiday recess.
A United spokesman declined to comment on the exit financing discussions.
The Air Transportation Stabilization Board, created after the 2001 hijack attacks to hand out up to $10 billion in credit assistance to needy carriers, last year rejected United's initial request for backing of most of a $2 billion loan.
The ATSB minced no words last year saying United's business plan was flawed and later told the carrier to fix its pension liabilities before resubmitting its aid request.
United was forced into bankruptcy after the stabilization board's decision. Since then, the airline has sharply cut operating costs by renegotiating union contracts, aircraft leases and deals with suppliers, among other things.
Getting the agency to approve a revised business plan is critical to the airline's emergence strategy.
Several sources said the non-government-backed piece of the overall $2.0 billion loan was likely to be about 20 percent, or $400 million — rather than the traditional 10 percent — to show a vote of confidence in the airline's plan for operating successfully once it gets out of Chapter 11.
Also said to be part of the financing structure — likely as part of the non-government-guaranteed piece — is Bank One Corp., according to sources. Bank One provided part of the special bankruptcy loans called debtor-in-possession financing based on its lucrative frequent flyer credit card relationship with United.
United, the world's second largest airline, has been lobbying Congress recently for relief from certain funding requirements as lenders negotiated the exit financing details.
Sources said the airline is prepared to file an amended plan for a loan guarantee soon, even though Congress has delayed action on the pension issue.
BIG ISSUE
United hoped to resolve the pension issue by year-end. But on Monday, the U.S. House of Representatives headed home for the holidays without acting on a Senate proposal that included both a temporary interest rate fix and extra relief for severely underfunded plans.
At one point, the airline had floated the idea it might seek up to $2.5 billion in exit financing.
"It will be in the $2 billion range as opposed to some bigger number," said one source familiar with the ongoing discussions. The reason is that United's cash flow has improved such that the larger number is not needed.
Still in discussion is what buyers will ultimately want the government-backed paper, which one source referred to as the "gold standard" among various types of issues.
"That's not trivial," the source said of the syndication discussions.
United exit financing pact near: sources
(Reuters) — United Airlines, still hoping for a first-half 2004 emergence from bankruptcy, is close to lining up about $2 billion in exit financing commitments from three institutions, sources familiar with the matter said on Tuesday.
Co-arranging the loan, which would be contingent upon winning a loan guarantee from the federal government, will be Citigroup and J.P. Morgan Chase, sources said
"The papers are not signed yet, but the details are almost completely agreed," said one source involved in the discussions, who asked not to be identified.
United, a unit of UAL Corp., filed the biggest bankruptcy in aviation history exactly a year ago. While it is still geared toward getting out of bankruptcy in the spring of next year, some big factors still need to be ironed out, including potential Congressional action to address about $4.8 billion in underfunded pensions through 2008.
Exit financing provides a liquidity cushion for a company as it emerges from bankruptcy. Those financing discussions are soon to wrap up, sources said, even though the pension outcome remains in doubt as lawmakers approach the holiday recess.
A United spokesman declined to comment on the exit financing discussions.
The Air Transportation Stabilization Board, created after the 2001 hijack attacks to hand out up to $10 billion in credit assistance to needy carriers, last year rejected United's initial request for backing of most of a $2 billion loan.
The ATSB minced no words last year saying United's business plan was flawed and later told the carrier to fix its pension liabilities before resubmitting its aid request.
United was forced into bankruptcy after the stabilization board's decision. Since then, the airline has sharply cut operating costs by renegotiating union contracts, aircraft leases and deals with suppliers, among other things.
Getting the agency to approve a revised business plan is critical to the airline's emergence strategy.
Several sources said the non-government-backed piece of the overall $2.0 billion loan was likely to be about 20 percent, or $400 million — rather than the traditional 10 percent — to show a vote of confidence in the airline's plan for operating successfully once it gets out of Chapter 11.
Also said to be part of the financing structure — likely as part of the non-government-guaranteed piece — is Bank One Corp., according to sources. Bank One provided part of the special bankruptcy loans called debtor-in-possession financing based on its lucrative frequent flyer credit card relationship with United.
United, the world's second largest airline, has been lobbying Congress recently for relief from certain funding requirements as lenders negotiated the exit financing details.
Sources said the airline is prepared to file an amended plan for a loan guarantee soon, even though Congress has delayed action on the pension issue.
BIG ISSUE
United hoped to resolve the pension issue by year-end. But on Monday, the U.S. House of Representatives headed home for the holidays without acting on a Senate proposal that included both a temporary interest rate fix and extra relief for severely underfunded plans.
At one point, the airline had floated the idea it might seek up to $2.5 billion in exit financing.
"It will be in the $2 billion range as opposed to some bigger number," said one source familiar with the ongoing discussions. The reason is that United's cash flow has improved such that the larger number is not needed.
Still in discussion is what buyers will ultimately want the government-backed paper, which one source referred to as the "gold standard" among various types of issues.
"That's not trivial," the source said of the syndication discussions.