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UAL's plan to exit bankruptcy runs into trouble

The Pension Benefit Guarantee Corp. has objected to United Airlines’ disclosure statement, documents filed on Thursday in the federal bankruptcy court show.
/ Source: The Associated Press

The government’s pension agency is among dozens of creditors and others objecting to a key part of United Airlines’ bankruptcy exit plan ahead of a court hearing on the carrier’s disclosure statement.

Opposition is coming from banks, investors, airports, unions and retired employee groups and is typical in large corporate bankruptcies, with creditors seeking more information as they jockey for better financial position as United wraps up a three-year Chapter 11 restructuring.

But the Pension Benefit Guaranty Corp., the government’s pension insurer, also contends United’s plan violates the settlement that cleared the way for United to terminate its defined-benefit pensions this year. Its filing became available electronically Friday, a day after it was submitted to bankruptcy court at the filing deadline for objections.

The pension agency had dropped its resistance to United’s pension termination last April in exchange for up to $1.5 billion in notes and convertible stock in a reorganized UAL Corp., United’s holding company. Now it says it will take up the fight again because the disclosure plan released by United last month puts onerous restrictions on its ability to sell that stock and will breach the agreement “if not cured to PBGC’s reasonable satisfaction.”

United spokeswoman Jean Medina called the objections a normal part of the process and said the company is continuing to work closely with the PBGC and others.

“We expect to resolve any issues and concerns so that the court can approve our disclosure statement next week and we can continue moving toward exit from bankruptcy,” Medina said.

While the opposition is unlikely to undo either the pensions’ termination or United’s bankruptcy exit plan, it could force the airline to come up with more money to satisfy the complaints.

“United may have to pay more cash to the PBGC and others ... and it’d be difficult to find the money,” said Bill Brandt, president and CEO of Development Specialists Inc., a Chicago-based restructuring and management consulting company. “They’ll either have to get the banks to advance more or go find an equity sponsor who will put enough cash in there that creditors will get a meaningful distribution.”

Comments from the PBGC on Friday suggested the differences can be bridged. “All parties are continuing to discuss the issues involved and hope to arrive at an amicable resolution,” PBGC spokesman Jeffrey Speicher said.

The Elk Grove Village-based airline released the disclosure statement on Sept. 7 as its blueprint for emerging from bankruptcy on Feb. 1. Its exit financing is to come from a $3 billion all-debt package led by JPMorgan Chase & Co. and Citigroup Inc.

“This is the downside of doing an all-debt plan,” said Brandt.

U.S. Bankruptcy Judge Eugene Wedoff could rule on the disclosure plan following Thursday’s hearing, with creditors scheduled to vote in January on whether to approve United’s final reorganization plan.

United’s decision to unload its four defined-benefit pension plans on the PBGC remains the most controversial part of its restructuring. The move will save it an estimated $645 million a year but at the expense of its employees, since the PBGC will cover only $6.6 billion of United’s $9.8 billion in unfunded pension liabilities.

“This is an undesirable and expensive precedent for U.S. taxpayers,” wrote Richard Faytinger of Sun City, Ariz., a United shareholder whose daughter is a former flight attendant for the airline, in one of many objections filed with the court. He called it “an unreasonable cop-out” by United Airlines “causing reduced pension and hardship for those past loyal employees. They were guaranteed a larger pension and should receive it.”