United Airlines Starts Bankruptcy Endgame
United Airlines' parent company said Monday it has launched its bankruptcy exit financing loan of up to $3 billion, effectively starting the countdown toward the conclusion of its three-plus years in bankruptcy.
UAL Corp. said it intends to leave bankruptcy "on or about" Feb. 1, as planned for months. A bankruptcy judge must first sign off on the company's exit plan following a Jan. 18 hearing.
The company obtained an agreement for the six-year exit loan last fall from JPMorgan Chase & Co. and Citigroup Inc., with GE Capital to act as syndication agent.
The loan is to be secured by the airline's existing assets and is comprised of a $300 million revolving credit facility and a loan of as much as $2.7 billion. UAL said it will use the loan to pay off the remainder of the debtor-in-possession loans that have financed its restructuring since December 2002 and for other bankruptcy-related expenses, working capital and other general corporate purposes.
Standard and Poor's assigned the exit loan a B-plus rating, while Moody's gave it a B2 rating - both with stable outlooks.
S&P analyst Philip Baggaley said in a note to investors that the company remains vulnerable to high fuel prices, fierce competition from low-cost domestic carriers and its heavy debt burden, but those weaknesses are somewhat mitigated by United's "extensive and well-positioned route system" and by reductions in labor costs and other financial obligations it has achieved in bankruptcy.
"We believe these ratings validate the work United has done and that the company is well positioned to compete with the strongest carriers, even with the industry's ongoing high fuel costs challenges," said Kathryn Mikells, United's vice president and treasurer.
United said last week it plans to spend more money on airline improvements this year now that its restructuring is virtually complete, earmarking $400 million for capital improvements such as more check-in kiosks, refurbished airplane interiors, upgraded computer systems and new ground equipment.
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