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