UAL request for approval of pension agreement draws objections

By Caroline Salls

Pittsburgh, May 6 - UAL Corp.'s emergency motion for approval of its agreement with the Pension Benefit Guaranty Corp. over termination of the company's pension plans drew objections from International Association of Machinists and Aerospace Workers and multiple trustees for its debt in separate filings Friday with the U.S. Bankruptcy Court for the Northern District of Illinois.

In its objection, the union said UAL is attempting to control key terms of a reorganization plan before a plan has been proposed by requiring the issuance of up to $1.5 billion of debt and preferred equity securities to the PGBC.

The union said the agreement also requires the PGBC to support UAL's further reorganization efforts, committing it to support and vote for whatever UAL submits in a plan of reorganization.

One group of trustees and collateral agents, made up of U.S. Bank NA, The Bank of New York and Wells Fargo Bank Northwest, NA, argued argue that "the agreement represents an overanxious attempt to placate one constituency, albeit an important one, at the expense of other higher ranked creditors."

The trustees said UAL has said in the past that the PGBC's claims are largely unsecured and not entitled to administrative priority, but "the agreement represents a dramatic departure from that position."

Another group of trustees, HSBC Bank USA, NA, agent, U.S. Bank NA and the Bank of New York, said that, although they don't object to the economics of the agreement, aspects of the structure of the settlement could be "unlawful and unfair discrimination amongst [UAL's] creditor constituencies."

The second group also claimed the agreement violates bankruptcy law by inflating the allowed amount of the unfunded liability claim.

HSBC is trustee for $985 million or revenue and special facility bonds, U.S. Bank is trustee for $165 million of revenue bonds, and Bank of New York is trustee for $2.1 billion of corporate bonds and revenue bonds.

But the agreement received support from UAL's official committee of unsecured creditors in a filing Friday.

UAL made its emergency motion for approval of its agreement on April 26.

Under the agreement, the pension regulator will terminate UAL's four pension plans and become trustee. The agency's claim against the company would be settled.

The four terminated plans are: the UA Pilot Defined Benefit Plan; the United Airlines Ground Employees Retirement Plan; the UA Flight Attendant Defined Benefit Pension Plan and the Management, Administrative and Public Contact Defined Benefit Pension Plan.

Under the agreement United will be released from more than $990 million in alleged administrative minimum funding contribution claims and almost $800 million in other alleged administrative claims.

In exchange, as part of United's plan of reorganization, PBGC will receive $500 million in 6% senior subordinated notes, $500 million in 8% contingent senior subordinated notes and $500 million in 2% convertible preferred stock.

The PBGC will also be allowed a single pre-bankruptcy unsecured claim against the United Air Lines, Inc. bankruptcy estate from termination of the pension plans.

A hearing is scheduled for May 9.

UAL filed for bankruptcy on Dec. 9, 2002. Its Chapter 11 case number is 02-48191.

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