Source: Wall Street Journal
Author: Susan Carey

CHICAGO -- United Airlines parent UAL Corp. said it received more than enough votes from creditors to support its plan of reorganization, another important step in the airline's effort to emerge from bankruptcy-court protection in early February.

Creditors of Chicago-based UAL had until Dec. 19 to return ballots. The vote was tabulated and reported last week to the U.S. Bankruptcy Court in Chicago. The court has scheduled a confirmation hearing Jan. 18 to Jan. 20 on the plan, which would end more than three years of bankruptcy-court protection for the airline.

But several hurdles remain before United, the nation's No. 2 airline by traffic, after AMR Corp.'s American Airlines, can step out of Chapter 11. Its unions and the committee representing unsecured creditors object to a management equity-incentive plan that would award 11% of the new stock in the reorganized UAL to 400 top management employees, down from the initial 15% award envisioned. The creditors committee also objects to the size of the unsecured claim lodged by the government Pension Benefit Guaranty Corp., which took over the airline's four underfunded pension plans, and to United's plan to give $56 million in convertible notes to its salaried and management employees to compensate them for pay and benefit cuts.

Finally, the creditors committee is raising concerns about the manner of selecting the company's management and a new board of directors, and about United's plan to be able to issue preferred stock as a possible "poison pill" to repel a takeover of the company.

Last week, the committee asked U.S. Bankruptcy Court Judge Eugene Wedoff for permission to retain a Yale Law School expert on corporate governance to help break an impasse in weeks-long negotiations between the committee and United on the latter two issues. Regarding those and the other major objections, a United spokesman said yesterday that the company "is working to consensually resolve as many of the objections that have been filed as possible."

The proposed reorganization would repay all secured creditors in full, along with holders of priority tax claims and administrative claims. Unsecured creditors would receive 4% to 8% of their claims in new UAL common stock. Holders of existing common and preferred stock will receive no compensation.

The company has more than 6,000 unsecured claims topping $20 billion. It intends to issue 125 million new shares of common stock when it steps out of court protection. UAL's restructuring advisers have estimated that the reorganized UAL will have an equity value of about $1.9 billion, but that projection is starting to look low given the airline industry's nascent turnaround and the fact that UAL bonds currently are trading at much stronger prices than four cents to eight cents on the dollar.

UAL said Friday that all of its unsecured classes of creditors but one -- the 20 eligible voting creditors in one class didn't return ballots -- voted for acceptance of the reorganization. The number of voters in each of those groups ranged from 64% to 100% voting for the plan, well above the necessary 50% per class. And the dollar value of votes per class ranged from 84% to 100%, above the two-thirds threshold.

To fund its emergence from court protection, UAL has arranged a $3 billion all-debt financing package from J.P. Morgan Chase & Co., Citigroup Inc. and General Electric Co. Part of the package will go to repay a $1.3 billion debtor-in-possession loan that has helped keep United flying through its extended Chapter 11.