United Skipping Fall Pension Payment

July 23, 2004 (PLANSPONSOR.com) - Faced with restrictions due to a new financing package, United Airlines' parent company said it will not be able to make a scheduled pension payment this fall.

UAL Corp announced it has successfully negotiated an agreement to amend its debtor-in-possession (DIP) financing credit facilities.   While the new deal provides the bankrupt airline with an additional $500 million in available funds, it prevents the company from making pension payments before its exit from bankruptcy, UAL said in a news release.

“The amended DIP agreement contains financial covenants that do not permit the company to make any payments inconsistent with its current financial projections,” the Chicago-based firm said. These covenants effectively prohibit “further pension contributions before exit, unless the lenders otherwise consent based on a modified business plan.”

Thus, United “does not expect to make any pension contributions before exit because such payments would diminish the company’s liquidity and reduce flexibility, thus impairing the company’s ability to attract exit financing,” United said.   The company though reiterated the decision “does not affect the benefits currently being paid under these plans.”

“By amending the DIP and not making these pension contributions, the company believes it will have adequate funding until its exit from bankruptcy,” United said.

The current lenders of the DIP include JPMorganChase, Citigroup, and CIT, and a new lender, GE Capital.   The company will seek bankruptcy court approval of the amended DIP agreement at the omnibus hearing currently scheduled for August 20, 2004.