UAL emerges from Chapter 11 with $3 billion exit financing; stock to begin trading Thursday

By Caroline Salls

Pittsburgh, Feb. 1 - UAL Corp. emerged from Chapter 11 bankruptcy when its plan of reorganization took effect Wednesday, according to a company news release.

"Today, we have the business platform we need to compete with the strongest carriers and a clear strategy of offering the right service to the right customer at the right price," chairman, chief executive officer and president Glenn Tilton said in the release.

"As we move ahead, United is committed to continuous improvement in costs, revenue and operations to optimize our resources and sustain competitive margins."

Executive vice president and chief financial officer Jake Brace said in the release, "Our approach is clearly working, as the numbers show. We have substantially improved our financial performance despite dramatic increases in fuel costs over the last 12 months."

According to an 8-K filing with the Securities and Exchange Commission, United entered into a new $3 billion senior secured revolving credit facility and term loan provided by a syndicate of banks led by J.P. Morgan Securities Inc. and Citicorp Global Markets Inc. as joint lead arrangers and joint bookrunners.

Tranche A of the exit facility consists of an up to $200 million revolving commitment available for tranche A loans and standby letters of credit, and tranche B consists of an up to $2.45 billion term loan commitment and additional term loan commitments of up to $350 million available upon United's acquiring unencumbered title to airframes and engines that are currently subject to its 1997 EETC transaction.

The loans mature on Feb. 1, 2012.

Borrowings under the exit facility bear interest at Libor plus 375 basis points.

At any time before Feb. 1, 2007, United can use the proceeds from any lower cost refinancing to redeem some or all of the term loans at a price equal to 101% of the principal amount plus interest.

The company said it will use the exit facility borrowings to finance working capital needs and for other general corporate purposes.

The company received offers of subscription for more than twice the capital necessary to support the $3 billion in financing it sought, enabling it to reduce the financing cost by 75 basis points to Libor plus 375 basis points, the release said.

Reorganization plan details

Under the plan, the company will issue 125 million shares of new UAL common stock: 115 million shares will be distributed to unsecured creditors, 9.83 million shares will be issued under the Management Equity Incentive Plan and 175,000 shares will be issued under the terms of the Director Equity Incentive Plan.

The company will also issue one share of class pilot MEC junior preferred stock to the Air Line Pilots Association, International, one share of class IAM junior preferred stock to the International Association of Machinists and Aerospace Workers, District 141, and $144.45 million in new UAL ORD settlement bonds for distribution to holders of unsecured Chicago Municipal Bond claims under the Chicago Municipal Bond settlement agreement.

UAL will also issue new UAL convertible employee notes for distribution to the Air Line Pilots Association, International, which will receive $550 million; the Professional Airline Flight Control Association, $400,000; Transport Workers Union of America, $24,000; the AFL-CIO; the Aircraft Mechanics Fraternal Organization, $40 million; International Association of Machinists and Aerospace Workers, $60 million; and U.S.-based salaried and management employees, $56 million.

In addition, the reorganized company will issue new UAL Pension Benefit Guaranty Corp. securities for distribution to the corporation under the Pension Benefit Guaranty Corp. settlement agreement.

Treatment of creditors under the plan will include:

• Holders of debtor-in-possession claims will receive 100% recovery in cash.

• Holders of secured aircraft claims will receive 100% recovery in reinstatement of their claims or return of collateral.

• Holders of other secured claims will receive 100% recovery in cash or the return of collateral.

• Holders of unsecured convenience class claims will receive 4% to 8% recovery in cash equal to the gross proceeds from the sale of the holders' unsecured distribution share.

• Holders of unsecured retained and unsecured rejected aircraft claims and other secured claims will recover 4% to 8% in their share of the unsecured distribution.

• Holders of old equity interests, including common stock, preferred stock and 13.25% Trust Originated Preferred Securities will receive no distribution.

UAL said it would begin to issue shares of common stock in the reorganized company on Wednesday, with a majority of the shares going to the company's former unsecured creditors.

Trading of these shares, which will be listed on Nasdaq under the ticker symbol "UAUA," will begin on Thursday.

UAL, the Chicago-based parent of United Airlines, filed for bankruptcy on Dec. 9, 2002 in the U.S. Bankruptcy Court for the Northern District of Illinois. Its Chapter 11 case number is 02-48191.

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