UAL Creditors Push For End to Trading Restrictions

December 24, 2002 ( - Creditors for United Airlines parent UAL Corp are asking a bankruptcy court to overturn its freeze on trading in UAL securities, according to a Reuters report.

UAL had sought the restriction on debt-trading to protect what it says are $1.4 billion in future tax deductions.   However, Lehman Brothers, which claims to hold $65 million in UAL debt securities, has said restriction on debt trading violate property rights provision in the US Constitution.  

In a brief filed on Friday with Judge Eugene Wedoff of the US Bankruptcy Court in Chicago, Lehman said the order constitutes, “an unconstitutional taking of Lehman’s property … without due process and without adequate protection for the risk of loss inflicted on it.”

“Lehman is being harmed each day by the restraint on trading as it is exposed to the volatile debt markets,” the bank went on to say.

The airline won a court order December 10 barring large stock and bondholders from selling their holdings indefinitely, arguing a selling in stock and bond securities could shift control of the company.  This possible shift in control could then make future tax deductions on $4 billion in operating losses, which could be carried forward in future tax years, worthless.

State Street Bank and Trust Co, which manages the company’s employee stock option (ESOP) plan, had  previously sought to overturn the trading restrictions  to no avail.  

Judge Wedoff has set a December 30 hearing on the issue.