United debt gets solid ratings
$3 billion in loans to finance operations after bankruptcy exit
By Mark Skertic
Tribune staff reporter
Published January 10, 2006
United Airlines parent UAL Corp. received good grades Monday from two major credit-rating houses on a $3 billion loan it secured, which the carrier said confirms it has made the right moves while in bankruptcy to become more competitive.
The announcement about the $3 billion loan came Monday after a nearly two-hour meeting between the airline's financial executives and bankers at the Waldorf Astoria Hotel in New York City.
The financing was one of the final hurdles for United to end its three-year bankruptcy stay.
The airline remains on pace to leave court protection by Feb. 1, said Kathryn Mikells, United's vice president and treasurer.
"From my perspective, they really validate the work the company's done over the past few years to improve our costs as well as our revenue performance," Mikells said.
"We are exiting from bankruptcy a much stronger company, poised to successfully compete in the marketplace."
The company reached a deal last year with JPMorgan Chase & Co., Citigroup Inc., and GE Capital for the six-year exit loan.
Monday's meetings were to launch the syndication of the loans, allowing other lenders to participate by taking a piece of the financing.
The airline also was heartened by the ratings provided Monday by Standard & Poor's and Moody's Investors Service. Analysts at both ratings houses were optimistic about the airline's future.
United faces challenges, including "high and volatile fuel prices and fierce competition from low-cost carriers in the U.S. domestic market" and a "highly leveraged financial profile," Standard & Poor's Philip Baggaley said in an analysis prepared for investors.
"These weaknesses are mitigated to some extent by United's extensive and well-positioned route system (providing good revenue potential, especially on international routes), and by reductions in labor costs and financial obligations achieved in bankruptcy," he said.
Baggaley's analysis notes that United's post-bankruptcy plan assumes oil prices of around $50 a barrel, although it is more likely that the airline will face prices around $60, he said. United should be able to make up some of the difference with higher fares, he said.
Standard & Poor's assigned the company's exit-financing debt a B+, with a recovery rating of 1, meaning it expects the airline to fully recover after bankruptcy. It also anticipates assigning the post-bankruptcy company a B rating with a stable outlook.
Moody's gave the exit-financing debt a B1 rating. The ratings outlook was judged stable.
A bankruptcy court hearing in Chicago on the airline's exit plan begins Jan. 18. It remains the final hurdle before Elk Grove Township-based United can leave bankruptcy, where it has operated since December 2002.
In the years since, United has cut $7 billion in spending, including dropping its pension programs and successfully seeking two rounds of pay and benefit cuts from workers.
Also Monday, United revised its estimate of losses for 2005 to $5.3 billion, up from $3.7 billion forecast in September, according to projections filed with securities regulators.
The airline projects net income of $11.6 billion this year, most of which results from accounting for prior years' losses. Net income is expected to drop to $517 million in 2007, but rise to $939 million by 2010.
United also has told the bankruptcy court judge that it is continuing efforts to reduce costs and control spending.
It has a tentative settlement with jurisdictions in California involving the assessed property values for some of its aircraft. The deal, involving tax credits given United, could save the carrier up to $15 million.
The carrier also will push back its planned purchase of up to 42 Airbus SAS planes to 2011.
"We don't need them right now, given efforts to significantly restructure our fleet," a United spokeswoman said.
$3 billion in loans to finance operations after bankruptcy exit
By Mark Skertic
Tribune staff reporter
Published January 10, 2006
United Airlines parent UAL Corp. received good grades Monday from two major credit-rating houses on a $3 billion loan it secured, which the carrier said confirms it has made the right moves while in bankruptcy to become more competitive.
The announcement about the $3 billion loan came Monday after a nearly two-hour meeting between the airline's financial executives and bankers at the Waldorf Astoria Hotel in New York City.
The financing was one of the final hurdles for United to end its three-year bankruptcy stay.
The airline remains on pace to leave court protection by Feb. 1, said Kathryn Mikells, United's vice president and treasurer.
"From my perspective, they really validate the work the company's done over the past few years to improve our costs as well as our revenue performance," Mikells said.
"We are exiting from bankruptcy a much stronger company, poised to successfully compete in the marketplace."
The company reached a deal last year with JPMorgan Chase & Co., Citigroup Inc., and GE Capital for the six-year exit loan.
Monday's meetings were to launch the syndication of the loans, allowing other lenders to participate by taking a piece of the financing.
The airline also was heartened by the ratings provided Monday by Standard & Poor's and Moody's Investors Service. Analysts at both ratings houses were optimistic about the airline's future.
United faces challenges, including "high and volatile fuel prices and fierce competition from low-cost carriers in the U.S. domestic market" and a "highly leveraged financial profile," Standard & Poor's Philip Baggaley said in an analysis prepared for investors.
"These weaknesses are mitigated to some extent by United's extensive and well-positioned route system (providing good revenue potential, especially on international routes), and by reductions in labor costs and financial obligations achieved in bankruptcy," he said.
Baggaley's analysis notes that United's post-bankruptcy plan assumes oil prices of around $50 a barrel, although it is more likely that the airline will face prices around $60, he said. United should be able to make up some of the difference with higher fares, he said.
Standard & Poor's assigned the company's exit-financing debt a B+, with a recovery rating of 1, meaning it expects the airline to fully recover after bankruptcy. It also anticipates assigning the post-bankruptcy company a B rating with a stable outlook.
Moody's gave the exit-financing debt a B1 rating. The ratings outlook was judged stable.
A bankruptcy court hearing in Chicago on the airline's exit plan begins Jan. 18. It remains the final hurdle before Elk Grove Township-based United can leave bankruptcy, where it has operated since December 2002.
In the years since, United has cut $7 billion in spending, including dropping its pension programs and successfully seeking two rounds of pay and benefit cuts from workers.
Also Monday, United revised its estimate of losses for 2005 to $5.3 billion, up from $3.7 billion forecast in September, according to projections filed with securities regulators.
The airline projects net income of $11.6 billion this year, most of which results from accounting for prior years' losses. Net income is expected to drop to $517 million in 2007, but rise to $939 million by 2010.
United also has told the bankruptcy court judge that it is continuing efforts to reduce costs and control spending.
It has a tentative settlement with jurisdictions in California involving the assessed property values for some of its aircraft. The deal, involving tax credits given United, could save the carrier up to $15 million.
The carrier also will push back its planned purchase of up to 42 Airbus SAS planes to 2011.
"We don't need them right now, given efforts to significantly restructure our fleet," a United spokeswoman said.
