United files Chapter 11

UAL, the parent company of United Airlines, today announced it and certain of its US subsidiaries have filed for protection under Chapter 11 of the US Bankruptcy Code.

UAL, the parent company of United Airlines, today announced it and certain of its US subsidiaries have filed for protection under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division in Chicago.

The Chapter 11 process will facilitate UAL’s restructuring which is designed to restore the company to long-term financial health while operating a normal course of business.

A business seeking to reorganise under a US Chapter 11 bankruptcy proceeding is required to submit a plan of reorganisation to a Bankruptcy court. This is known as Debtor in possession (DIP) financing. If a business cannot formulate such a plan, it may be forced into Chapter 7 liquidation.

UAL reported that, in conjunction with its filing, it has arranged commitments for $1.5 billion in debtor-in-possession (DIP) financing. The DIP financing for United is structured as a $300 million facility from Bank One and a $1.2 billion facility from a group that is led by J.P. Morgan Chase and Citibank, and includes CIT Group and Bank One.

Access to $700 million of the $1.2 billion facility is subject to certain terms: such terms require that the company achieve performance milestones under its business plan, which include substantial cost savings in the near term. In addition to approximately $800 million in unrestricted cash-on-hand, the DIP financing will provide adequate liquidity to meet the anticipated needs of UAL and all of its operating units to continue normal operations throughout the Chapter 11 process.

Included in the filing are UAL, United Airlines and twenty-six other direct and indirect US subsidiaries.

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