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United has $3 billion financing commitment

United Airlines Thursday said JP Morgan and Citigroup have agreed to arrange a $3 billion all-debt financing package to help the No. 2 U.S. carrier exit bankruptcy in February.
/ Source: Reuters

United Airlines Thursday said JP Morgan and Citigroup have agreed to arrange a $3 billion all-debt financing package to help the No. 2 U.S. carrier exit bankruptcy in February.

United, a unit of UAL Corp., said it signed a commitment letter for the financing for a six-year term. The $3 million will be used to repay United's debtor-in-possession loans, make other payments required upon exit from bankruptcy and ensure strong cash balances to conduct post-reorganization operations.

The commitment letter will be filed in federal bankruptcy court on Friday for consideration on Oct. 21.

"Today represents a validation of three years of hard work, that at the outset, many critics said could not be done," said Jake Brace, United's chief financial officer.

The financing will carry an interest rate equal to the London Interbank Offered Rate plus 450 basis points. In August, United said it had proposals from four financial institutions for $3 billion in financing.

The airline weighed those offers and settled on JP Morgan and Citigroup, who agreed to bring together a group of banks to provide total financing.

United has been restructuring in bankruptcy since December 2002. In that time, the airline has used its court protection to slash labor costs and dump its underfunded pension plans. The entire industry, however, still grapples with soaring fuel costs and low-fare competition that makes it difficult to shift expenses to passengers.

United, last month, filed its plan of reorganization with the court. If the plan wins court approval, the airline will begin to solicit votes for confirmation of the plan.