United Agrees To Give $1.5 Billion Note To P B G C

[ualdriver]

ummmm..........we're going to have LESS debt when we exit Chapter 11 than we had before. Not more. That's why we have this whole Chapter 11 thing. And the banks and creditors are going to hand us a couple of billion that they have laying around growing dust in a vault somewhere knowing that we're just planning on filing again a short time after exiting? I don't think so. Just because Continental and US Air had a couple of spins through the courts doesn't mean we are. Two totally different scenarios.

 

[FWAAA]

ummmm..........we're going to have LESS debt when we exit Chapter 11 than we had before. Not more. That's why we have this whole Chapter 11 thing. And the banks and creditors are going to hand us a couple of billion that they have laying around growing dust in a vault somewhere knowing that we're just planning on filing again a short time after exiting? I don't think so. Just because Continental and US Air had a couple of spins through the courts doesn't mean we are. Two totally different scenarios.

[post="266150"][/post]​

Really?

The reality is that UAL did not file Ch 11 because its debt had become excessive or unmanagable; UAL filed Ch 11 because it was in a cash crunch and found it could borrow no more. UAL almost ran out of cash. A cash flow crisis, not a debt crisis.

As if less debt is gonna matter. B)

 

[eolesen]

Really?

The reality is that UAL did not file Ch 11 because its debt had become excessive or unmanagable; UAL filed Ch 11 because it was in a cash crunch and found it could borrow no more. UAL almost ran out of cash. A cash flow crisis, not a debt crisis.

As if less debt is gonna matter. B)

[post="266178"][/post]​

Yes and no.... UAL filed when they did because they had $875M in debt payments coming due in December 2002. Had those debt payments not been due, I'm not as convinced that the filing would have occurred when it did.

 

[enilria]

It is becoming increasingly clear they are going to emerge (eventually) loaded with new debts they cannot ever pay off

[post="266131"][/post]​

Clearly the $550m bond for the pilots, the $1.5b to the PBGC, and the $2b in exit financing are new debts. I don't say they will emerge with more debt, I'm saying they will exit with new debts which is unequivocally true. Whether they emerge with less or not they will not be able to service ANY of it. They will not have sufficient cash flow to pay the interest expense on this $4b or the other $6-8b in aircraft mortgage debt they will not be able to shed without a massive fleet cut (which won't happen).

The bottom line as I said before is that they are using this filing to transfer a bunch of quasi-secured debt into unsecured debt. The only benefit of this maneuver is if you file again the unsecured debt is almost certainly unrecoverable.

 

[FWAAA]

Yes and no.... UAL filed when they did because they had $875M in debt payments coming due in December 2002. Had those debt payments not been due, I'm not as convinced that the filing would have occurred when it did.

[post="266212"][/post]​

You are correct - I had forgotten about the $875 million; nevertheless, UAL's unrestricted cash was down to $800 million the day it filed, so the filing was inevitable regardless of maturing debt, in my view.

Thus, the Company was down to less than $800 million of unrestricted cash on hand as of today’s filing. And United anticipates burning approximately $20 - $22 million of cash per day for the rest of December and approximately $10 - $15 million of cash per day during January 2003. As a result, United could no longer stave off bankruptcy. Absent Chapter 11 protection, United would have been required to repay a $300 million revolver to Kreditanstalt für Wiederaufbau (“KfWâ€￾), with the grace period for an additional $575 million payment on
airplane-backed securities set to expire on December 12, 2002. Although $195 million of these securities are held by KfW, the remaining $380 million are widely held among the public, making it extraordinarily difficult for United to negotiate an out-of-court restructuring of this debt. Making these $875 million in payments would have reduced United’s cash to unacceptably low levels.

http://www.pd-ual.com/Downloads/Informatio...Lines%20Inc.pdf (p13 of PDF)

Even if UAL can shed some debt in its Ch 11 and find someone stupid enough to advance a couple billion for exit financing, the long-term prospects don't look so good, especially with the $2 billion in IOUs for the pension terminations.

 

[ualdriver]

Clearly the $550m bond for the pilots, the $1.5b to the PBGC, and the $2b in exit financing are new debts.  I don't say they will emerge with more debt, I'm saying they will exit with new debts which is unequivocally true.  Whether they emerge with less or not they will not be able to service ANY of it.  They will not have sufficient cash flow to pay the interest expense on this $4b or the other $6-8b in aircraft mortgage debt they will not be able to shed without a massive fleet cut (which won't happen).

The bottom line as I said before is that they are using this filing to transfer a bunch of quasi-secured debt into unsecured debt.  The only benefit of this maneuver is if you file again the unsecured debt is almost certainly unrecoverable.

[post="266287"][/post]​

Well, enilria, you must know something that the the 3 or banks and their respective legions of accountants and analysts who make those kinds of determinations for a living don't know. Let's just say I disagree with your above analysis, and so do the banks that will be providing us with exit financing.

And as far as long term prospects go, why don't we just wait until we see what our FINAL costs look like when we exit bankruptcy and go from there. Again, no financial institution is REQUIRED to lend UAL money to exit bankruptcy, but obviously our "long term prospects" got the attention of 3 or 4 big lenders, and obviously they are still willing to do business with us.

 

[enilria]

Well, enilria, you must know something that the the 3 or banks and their respective legions of accountants and analysts who make those kinds of determinations for a living don't know. Let's just say I disagree with your above analysis, and so do the banks that will be providing us with exit financing.

And as far as long term prospects go, why don't we just wait until we see what our FINAL costs look like when we exit bankruptcy and go from there. Again, no financial institution is REQUIRED to lend UAL money to exit bankruptcy, but obviously our "long term prospects" got the attention of 3 or 4 big lenders, and obvioulsy are still willing to do business with us.

[post="266295"][/post]​

I guess YOU know something I don't know. Who are the banks providing the exit financing you speak of? If there were any on the hook they would have announced it already. The reason they haven't is that they are scared of the exact items I just mentioned and want to be compensated with high interest to cover the risk. Do you think for one minute that a bank is unconcerned about United giving the PBGC a $1.5b bond? If you think that is irrelevant to their desire to finance UA then you are naive. They are walking a tightrope where with each step either the unions, the banks, the PBGC, or the judge are upset. To satisfy the PBGC they scr#wed the banks and the unions. To satisfy the banks they will scr#w the PBGC by making the exit financing a higher priority for repayment than the PBGC bond (they already did that if you read the fine print).

They can get exit financing...but at what terms? I'm sure they could get $2b for 15% interest. I suspect they won't exit until fuel comes down because they can't get a reasonable financing deal now.

 

[Cosmo]

Notes are interest bearing as will be the exit financing. Let's say they get the deal of the century (given their credit rating of ZERO) and pay 8% on these debts. $4b x 8% interest = $320 million per year in new interest expense.

Looks like they got the deal of the millenium! Perhaps there are others who are closer to this deal than you are that know more about it than any of us (myself included) on this board.

According to an article in yesterday's (5/2/05) edition of Business Insurance -- a periodical in that industry similar to Aviation Daily in the airline industry -- at least part of the United deal with the PBGC is on better terms than you surmised. One paragraph of the article is quoted below:

For example, under the terms of a $500 million note to be issued to the PBGC with a 6% interest rate, interest would be paid in the form of more notes or United common stock through 2011. The note itself would not have to be paid off until 2030.

Thus, interest on this note would accrue without being a cash drain to United for at least six years. But don't let the facts stand in the way of a good rant! :down:

 

[ualdriver]

Enilria says: I guess YOU know something I don't know. Who are the banks providing the exit financing you speak of?

OK, I'll post this yet AGAIN, but I'll type it more slowly so that this time it sinks in. If I have to post this link one more time to prove that their are banks out there willing to lend us exit financing, I think I'm going to gag.......

United Gets Four Offers of Debt Financing
2/14/2005 11:07:00 PM

CHICAGO, Feb 14, 2005 (AP Online via COMTEX) -- United Airlines said Monday it has received four offers of debt financing worth as much as $2.5 billion to help the nation's No. 2 carrier emerge from bankruptcy......

http://www.marketwatch.com/tools/quotes/ne...FEE19C348EF1%7D

And that public statement, which I was personally very surprised to read, was made when conditions, in my opinion, were a little worse than they are now (i.e. oil "seems" to be easing a bit and we've had a couple of price increases stick since). The tightrope stuff you talk about.......yeah, yeah. Bankruptcy is a HUGE tightrope. Nothing new there. And I'm not too sure you totally understand how much debt a 15B dollar company can support year over year. It's not uncommon for an airline, such as UAL, to pay 100's of millions of dollars, per year, in interest expense. I didn't say it was good- it's just not uncommon. Pull a few annual reports for our competitors and see for yourself. Even the Blue darling out of JFK has 53M in interest expenses and it's only a 1.2B dollar company in revenues. So I think your statments about these convertible notes are way off base. We have much bigger problems looming ahead than a couple of billion going to the PBGC and ALPA.

 

[jimntx]

I guess the next question is, if UAL announced on 14FEB05 that they had 4 offers of exit financing, why have they not exited?

Also, there has been no further talk of these offers. Do we know that they are still "on the table?"

 

[ualdriver]

Because, simply put, EVERYONE has to come to some sort agreement as to HOW we're going to exit bankruptcy. For example, the lenders who are willing to give us exit financing will have lots-o-strings attached, the stickiest one certainly being that the pension issues have to be solved with the company in one piece. I doubt any bank is going to hand over a big bag of money (I think the bags have big dollar signs on them just like the cartoons) just to have it go right into employee pensions and not to the day to day running of the company. Further, I still think we have a big block of aircraft leases to negotiate, among other things.

Are they still on the table? Yeah, I'd say so, but Tilton doesn't update me every day as much as I ask him to. Nothing drastic has occurred since mid FEB that the lenders wouldn't have been aware of already before making the announcement. For them to pull 100's of millions of dollars off the table for no reason would be highly unlikely when they knew the risk before getting in. Now, if there was a terrorist attack, hull loss, successful union strike, etc., I would imagine they'd take their money and run!

 

[737nCH11]

I wouldn't count the convertible notes as significant long term debt. In a perfect world, and with a competitive cost structure in place, UAL stock should do pretty good (at least for a while) upon emergence from BK. Once the conversion price of the shares of stock exceeds the parity price of the bonds, investors will convert wiping that debt off of UAL's books. Convertible bonds are also issued with a significantly lower coupon than normal corporate debt.

It will all be moot anyway after the AMFA strike this summer!

 

[uafa21]

Why hasn't Ua disclosed it's 1st quarter earning, or should I say lack of? Could it be that they are waiting till right before the hearings on May 10th?

The leases on the planes may not be as easy as negociate as the pensions with the pbgc. Then what happens?

This management has an agenda. The agenda is to get all they can from labor and everyone else. They blame everyone for the losses except their own stupid handling of the company. As far as leases owed, the company will still owe more than $20B in aircraft leases and loans after this thing is over with if it ever is.

 

[mrfish3726]

I agree with 737nCH11 "It will all be moot anyway after the AMFA strike this summer!"

 

[767jetz]

The agenda is to get all they can from labor and everyone else. They blame everyone for the losses except their own stupid handling of the company. As far as leases owed, the company will still owe more than $20B in aircraft leases and loans after this thing is over with if it ever is.

[post="266495"][/post]​

Just curious... If you were CEO, what would you do differently? I'm not being sarcastic with that question. I'm serious. What, SPECIFICALLY, would you do?

And another good question is... Moving forward from today, what would you want to REASONABLY and SPECIFICALLY see happen in order for you to be satisfied and allow the company to emerge from BK with the support of the banks we have lined up?

I hear all the griping from everyone, every day. I have family who are AFA and AMFA. I hear what's being said on the line. I agree that everything that has happened to labor in this industry sucks and is unfair. I agree that labor's paycuts are subsidizing low fares, security costs, and unreasonable price wars. This is an industry dilema. It is not unique to UA. Every other airline is facing the same fate. The only thing separating us is a matter of a few months or maybe a year's time.

But I never hear any reasonable SPECIFIC suggestions, except that it's someone else's fault for "not running the company well."

I know that previous management took their eye off the ball with visions of mergers, and Avolar, repurchasing stock at $100 per share, etc. I know that there are a few managers left from that time. (You can't just fire everyone at a company the sized of UA without scaring away the little financial support you might have left.) But from the time Tilton showed up and was handed the mess, what would you suggest he do differently.

I know everyone would like to hear that UA will continue to pay pensions, and raise ticket prices, and give us a raise, and hire back all the furloughs, and keep all the outsourced maintenance. But that is not a REASONABLE suggestion. If they did the company would be gone by now. (Which is what the employees of AA, and NWA and Delta, and CO and others would love.)

A person or a corporation can not give what it doesn't have. If I have $10 in my pocket and you put a gun to my head and demand $100, what can I do? Either I give you $10 and you are satisfied, or you shoot me and take my $10. But you still only got $10.

UA doesn't have the resources to pay it's pensions and remain a viable entity. It doesn't matter how we got here. But it is the reality. UA doesn't have billions of dollars. The banks do, and they won't hand it over until UA meets their criteria. Do you think a job action will convince the banks to loan UA 2-3 Billion dollars?? Pulling the trigger on UA does not serve your own purpose.

Now if you believe that UA CAN afford to pay it's pension liabilities and emerge successfully from BK, and that they are some how hiding money, then by all means I can understand the usefulness of a job action to convince them to share the wealth. But unfortunately that is not reality.

And in better times, when the company is profitable and doesn't want to share the wealth, again, I understand the usefulness and sometimes even the neccesity of a job action. What I don't understand is the threat of shutting the doors and putting everyone's hard work in the grave with the corps.

Wouldn't it make sense to make the best deal possible, get what you can for now, minimize the loss, and rebuild UA so that we can eventually regain some of what was lost?

And before the usual suspects come out and accuse me of sounding like a certain US Air captain, (Ouch! that really cuts deep!) I'm not trying to talk you into or out of anything. I'm just trying to understand the rational behind the position and what you hope to accomplish.

It is my hope (belief really) that beyond the emotion of these sensitive subjects (specifically pensions), rational thought and compromise will emerge.