Fitch comments on UAL decision

Fitch Ratings said it believes that Tuesday's court decisions in the United Airlines' bankruptcy proceedings regarding the treatment of the carrier's special facility bonds sets a troubling precedent.

The president may weaken security provisions behind certain municipal leased-backed bonds but potentially strengthen bondholder security on other lease structures and provide guidance for structuring future transactions as true leases, the agency said.

The ruling came in response to a motion filed by United in which the airline asked the bankruptcy court to determine if certain special facility bonds issued on the airline's behalf constituted a true lease subject to the provisions of Section 365 of the U.S. Bankruptcy Code, or instead were "disguised financings" that should be treated by the court as unsecured debt of the airline.

The case involved five series of bonds issued to construct various facilities for the airline at four airports - Denver International, Los Angeles International, San Francisco International, and New York John F. Kennedy International - totaling $510 million. The decision rendered yesterday does not address a second case that remains pending before the bankruptcy court regarding about $601.3 million in special facility bonds issued by the City of Chicago for United facilities at O'Hare International Airport.

Yesterday the court ruled that the following four transactions constituted unsecured financing obligations: $34.235 million New York City Industrial Development Agency series 1997 (JFK); $154.845 million California Statewide Community Development Authority series 1997A (SFO); $25 million Regional Airports Improvement Corp. issue of 1984 (LAX); and $34.390 million Regional Airports Improvement Corp. issue of 1992 (LAX).

As a result of this decision, bondholders in these four transactions may rank as unsecured creditors in the bankruptcy proceedings.

In contrast to these four transactions, the court found that the structure supporting the payments on the City and County of Denver's $261,415,000 series 1992A bonds constituted a true lease. As such, United must now decide whether to assume or reject the Denver lease as part of its reorganization plan.

The decision regarded the following cases: United Airlines Inc v. HSC Bank USA, et. al (SFO); United Airlines Inc. v. The Bank of New York, et. al. (JFK); United Airlines Inc. v. U.S. Bank N.A., et. al. (LAX); and United Airlines Inc. v. HSC Bank USA et. al. (DEN).

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