UAL seeking $2 bln in bank loans

[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]

 



UAL seeking $2 bln in bank loans  =

 =

 =

  =


Thursday November 14, 6:19 PM EST =


(Adds more details throughout)

By Dane Hamilton and Kathy Fieweger

NEW YORK/CHICAGO, Nov 14 (Reuters) - UAL Corp. (UAL) Corp., parent of mon=
ey-losing United Airlines, is in talks with lenders to arrange loans of u=
p to $2 billion to maintain operations if it files for bankruptcy, the ai=
rline said on Thursday.

Jake Brace, UAL chief financial officer, said the debt-strapped No. 2 U.S=
=2E airline is making arrangements for the "debtor in possession" loan, w=
hich would be among the largest loans of its kind.

"We'll confirm we're talking about a $2 billion in DIP, said Brace in an =
interview, confirming an amount earlier reported by Reuters. "That's how =
much we think we need when we forecast our cash draw over the next two ye=
ars."

  =


Brace declined to comment on which banks were part of the discussions. So=
urces familiar with the talks said the lead potential lenders include J.P=
=2E Morgan Chase (JPM), Citigroup (C) and GE Capital, all of which are ma=
jor DIP lenders.

SHARES DROP

UAL Chief Executive Glenn Tilton told the New York Times on Wednesday tha=
t the company could file for Chapter 11 by Dec. 2 if other financing rout=
es fail, including getting $1.8 billion in federal loan guarantees and mo=
re union concessions.

Bankruptcy filings and attendant restructurings typically leave equity in=
vestors with little or no value in their shares. Often creditors end up o=
wning the company in a restructuring, which can lead to a company being s=
old or liquidated in the worst case.

UAL shares traded off as much as 71 cents to $2.95, closing at $3.12, dow=
n about 15 percent, on the New York Stock Exchange.

The DIP loan would be one of the largest loans ever secured by a company =
in Chapter 11. Kmart Corp. also had a $2.0 billion DIP loan, as did World=
Com.

SENDING A SIGNAL

Experts said the company would have to begin arranging a DIP loan to gain=
 credibility for its threats to file for Chapter 11.

"No one would take you seriously if you hadn't made any arrangements for =
DIP financing," said Chester Salomon, partner in Salomon Green & Ostrow, =
a New York law firm that specializes in bankruptcies. "You want to send a=
 message out that you mean it."

The DIP loan would also act to reassure UAL suppliers, employees and othe=
r stakeholders that the company would have the means to pay its bills in =
Chapter 11, even if it doesn't use the loan. Enron, for instance, arrange=
d a DIP loan prior to its bankruptcy filing last December, but never drew=
 any money from it.

Putting a DIP loan in place can also be a negotiating tactic to show the =
unions that the company is serious about filing for bankruptcy, where a c=
ourt can void labor contracts, say experts. United, like other carriers, =
is currently in tough negotiations with labor unions to win concessions.

"Looking for DIP financing sends a very strong signal to labor unions tha=
t the company is serious about filing for bankruptcy and is unable to wor=
k out its issues with the unions," said Barry Dichter, a bankruptcy lawye=
r with Cadwalader, Wickersham & Taft, a New York law firm.

PLAN B

The DIP loan talks come as UAL is pressing the federal government for a $=
1.8 billion guarantee on a private sector loan of up to $2 billion. Also,=
 on Dec. 2, some $375 million in debt payment will come due even after re=
cently renegotiating big payments to the German bank KfW.

Senior advisors to the airline say it could pay the $375 million, but tha=
t would leave little operating cash for an airline that is hemorrhaging b=
etween $8 and $10 million a day.

DIP loans, while expensive for the borrower, bring in large fees for the =
lender and are generally senior to most other forms of debt during the ba=
nkruptcy process, making them a safer loan for a bank. Even if the loan i=
sn't drawn down, fees are paid to the lender to keep the loan in place.

The discussions for the DIP financing come as the airline is in protracte=
d labor negotiations with unions including the International Association =
of Machinists, which has a history of contentious relations with United.

The airline has recently negotiated specific deals with pilots, flight at=
tendants and smaller unions; those all presume an out-of-court restructur=
ing. =



=A92002 Reuters Limited. =


Roger
EWROPS

[Index of Archives]         [NTSB]     [NASA KSC]     [Yosemite]     [Steve's Art]     [Deep Creek Hot Springs]     [NTSB]     [STB]     [Share Photos]     [Yosemite Campsites]