PBGC to Sell UAL Shares

February 1, 2006 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) will sell half of its UAL Corp. stock.

The Wall Street Journal reports that the PBGC became an unsecured creditor and largest shareholder in the company after it took on $10.2 billion in unfunded pension liabilities during UAL’s bankruptcy.   T he PBGC received about $500 million in convertible stock, as well as notes worth up to $1 billion (See  United Flight Attendants Try to Block Executive Share Awards).

The agency takes the position that the government should not take an active role in corporate management or governance, according to the WSJ.   As part of its policy, the agency sells equity stakes it receives in companies during bankruptcy reorganizations in relatively short periods of time. It usually assigns a money manager to handle its equity holdings.

The stock sale of some stock and the $1.5 billion worth of additional notes and preferred shares it is receiving will help the PBGC recover more than the seven cents on the dollar it normally realizes as an unsecured creditor in bankruptcies, according to the Journal report.

UAL plans to issue 115 million new shares to unsecured creditors and employees.   The top 400 company managers will receive 9.8 million in options and restricted stock that will vest over four years.   Members of the new 12-person board of directors will receive 175,000 new shares total. UAL’s unions collectively have larger claims than the agency and will have a bigger stake in the new company.   In addition to their unsecured claims, unions and the salaried and management employees will receive $726 million of convertible notes to help make up for the pension plan terminations.

UAL is scheduled to emerge from bankruptcy Wednesday and shares in the reorganized UAL are expected to begin trading on the Nasdaq Stock Market Thursday.