Debt Servicing Question

[Slug]

Not trying to flame or anything, but just curious. The other day after UAL came out of BK we were reading the USA Today article about the new improved United. The article mentioned that UAL still had $18 Billion in debt upon exiting BK.

How much does this debt "cost" UAL a year? Do they pay a lower interest rate? How does it work?

Any closet MBAs out there care to enlighten me?


Thanks

Slug

 

[Slug]

bump!

 

[K-Mart]

Not trying to flame or anything, but just curious. The other day after UAL came out of BK we were reading the USA Today article about the new improved United. The article mentioned that UAL still had $18 Billion in debt upon exiting BK.

How much does this debt "cost" UAL a year? Do they pay a lower interest rate? How does it work?

Any closet MBAs out there care to enlighten me?


Thanks

Slug

Whatever was negotiated to secure financing prior to the exit. This is my best guess.

 

[wooferdog]

I'm not an MBA, but (without looking at the SEC filings) I would think it would be:

1. The 'pennies on the dollar' that the creditors committee agreed to take to settle. Typically, large creditors take what is owed to them in debt as well is newly-issued shares;

2. It very well could also be the DIP money that was put-up upon filing Ch. 13.

3. It would also be service on the newly-loaned $$$ for operations post-13.

It would be difficult to figure-out what this debt costs UAL as some of the debt matures sooner rtather than later, and some of it could very well convert to one or more classes of shares. Just figure on the LIBOR rate, or right around the federal funds rate. About 7% money.

I hope I did not confuse you even more.

 

[Slug]

According to the article, this was not debt that was going away. They got rid of about $6 Billion with the "pennies on the dollar", but the $18 Billion I don't know about. We were just curious how it worked. I know if I had $18 Billion in debt the interest only would be gargantuan at Bank of America rates.

 

[Atlanta Vicks]

According to the article, this was not debt that was going away. They got rid of about $6 Billion with the "pennies on the dollar", but the $18 Billion I don't know about. We were just curious how it worked. I know if I had $18 Billion in debt the interest only would be gargantuan at Bank of America rates.

BoA won't charge a company like UAUA the rates it charges us say on a 30 year fixed for a house. Think more in terms of the rate probably be Prime or less. I actually would be surprised if the rate was as high as Prime.

 

[Daddy]

Bankruptcy doesn't wipe out ALL of your debt...it is a restructuring of it and your organization. It does, however, wipe out all of the shareholder's equity or stock, so if you owned any shares, you got squat now. I'm not sure where the bondholders fallout...but I think they lost out, too. Bottom line...UAL still has a lot of debt to service, just not as much...clear as mud now?

 

[Andy]

Slug, are you debating on returning to UAL vs staying at LUV? It ain't gonna do me no good; you're one seniority number lower than me.

Debt? Geez, how much is the US gov in debt? What seems like colossal numbers to us peons may not be all that bad for large operations. Besides, if they issue another 1/2 bil shares of stock, they'd get close to wiping out the entire debt.

 

[Slug]

Pinkie, (aka Andy)

We were just curious.....nothing more..... 4% APR on 18Billion is a lot just to break even. We figured it couldn't be that simple....hence the question.

As far as recall....I think I'll stay here.


Slug
aka. The Brain

 

[AA717driver]

Debt helped kill TWA. The type of long-term debt they are talking about is money borrowed against owned assets. Gates, ground equipment, slots, aircraft.

AMR is $20B in debt and the annual payments are in the $1B range. And that's with a GOOD credit rating. According to my JB friend with an MBA, the debt isn't a guaranteed killer for an airline but take any revenue produced by the company and skim the debt service right off the top.

So, whatever UAL or AMR takes in each year the operating expenses will have to be paid from the remaining revenue after considering the debt payments. (That's REALLY simplified so don't start picking it apart.)

This debt CAN be refinanced when the value of the assets begins to increase--if it ever does. What's a 1983 MD-82 going for these days? How about a Clark tug with high mileage...? Gates at ORD or DEN? Slots anywhere?

And post-bankruptcy credit ratings are in the toilet so the airlines are constrained in their attempts to borrow money.

Leaving SWA to go back to UAL anytime soon would not be the stupidest thing any pilot has ever done. But it would be close... TC