Following on this earlier post, UAL Corp., the parent of United Airlines, announced that it has finalized $3 billion in debt financing commitments from Citigroup Inc. and J.P. Morgan Chase & Co. that will allow the company to exit its long-pending chapter 11 case early next year. Here are the previous posts about the United Airlines bankruptcy saga and related airline industry financial issues.
The airline industry is in a world of hurt right now, suffering under the toxic combination of record jet-fuel prices, stiff competition from lower-cost discount airlines, and dubious management decisions of legacy airline companies. UAL filed for Chapter 11 in December 2002, so even if it stays on course with its reorganization plan, it will emerge from chapter 11 after operating for over three years under bankruptcy court protection. US Airways Group Inc. has gone through a chapter 22 case (two Chapter 11 filings) over the past three years, and just recently emerged from bankruptcy under a plan based on a merger with America West Holdings Corp. Delta Air Lines and Northwest Airlines both filed chapter 11 cases on Sept. 14.

UAL had been shopping its exit financing package over the past several months to a number of institutions, including Deutsche Bank AG and General Electric Co. During that time, UAL considered an exit financing approach that would include equity funds from a rights offering or private-equity investment, but opted for the highly-leveraged debt package when the prospective equity investors demanded too big a piece of the reorganized airline’s equity pie. Under the deal that UAL selected, Citigroup and J.P. Morgan Chase will syndicate the secured loan to a consortium of financial institutions.
United will submit the exit-financing agreement to the bankruptcy court today, and a hearing on UAL’s pending disclosure statement is scheduled for Oct. 20. Once the disclosure statement is approved by the bankruptcy court, then the process of creditor voting on the plan will take place over the next couple of months. United’s proposed plan proposes to pay secured claims, priority tax claims and administrative claims in full, and to pay a dividend of 4% to 7% on unsecured claims in the form of common stock in the reorganized UAL.As in typical in such debt for equity plans, existing common and preferred equity in UAL is washed out and holders of such equity receive nothing under the plan.