PBGC Has Issues with UAL Exit Plan

October 17, 2005 (PLANSPONSOR.com) - A number of UAL's creditors aren't happy with the troubled carrier's proposed bankruptcy exit plan - and leading the charge is the Pension Benefit Guaranty Corporation (PBGC).

The PBGC said in a filing that the airline’s disclosure statement, which details its financial model, is “unconfirmable,” according to Reuters.

The nation’s private pension insurer 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 (see  PBGC Takes Over United Pilot Pension Plan ).   Now the PBGC 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,” according to the Associated Press.

The PBGC said the original settlement had placed no restrictions on its ability to sell the securities, but UAL’s proposed plan would restrict the transfer of the new equity securities for five years, according to Reuters (see  United, PBGC Hammer Out Plan Takeover Pact ).   “The sale restriction conflicts with the clear and unambiguous terms of the PBGC settlement,” the PBGC said.

The Elk Grove Village, Illinois-based airline released the disclosure statement on September 7 as its blueprint for emerging from bankruptcy on February 1.   United spokeswoman Jean Medina told the AP the objections were 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, according to the report.

As for its part, a PBGC spokesman told the AP, “All parties are continuing to discuss the issues involved and hope to arrive at an amicable resolution.”