Pension Agency to Fight UAL's Reorganization Plan
Source: Crain's Chicago Business
Author: Julie Johnsson
Showdown expected at next week's bankruptcy hearing
The Pension Benefit Guaranty Corp. (PBGC) vows to fight United Airlines’ proposed reorganization plan, claiming it “materially breaches” the terms of a settlement that gave the agency control of the airline’s underfunded employee pension plans.
The quasi-government agency demands that United pay — in cash — $9.8 billion to cover the gap between the plans’ assets and liabilities before settling claims with other creditors.
United and the PBGC say they are in talks to resolve the dispute which centers on when the agency would have been allowed to cash in the common stock it was slated to receive to cover its nearly $10 billion claim. The amount of stock the agency was to receive, and the size of its claim, haven’t yet been determined by the Bankruptcy Court. It now seeks to be paid in cash rather than stock.
The spat could impede Elk Grove Township-based United’s efforts to exit bankruptcy by early next year. Furthermore, UAL’s creditors committee said in a court filing Thursday that it too cannot support the reorganization plan. A Chicago Bankruptcy Court is slated to begin hearings Oct. 20 on the carrier’s disclosure statement, which details its proposed business plan.
A lock—up provision in United’s proposed plan would restrict sales of common stock by many creditors, including the PBGC, for five years. However the PBGC claims its settlement terms ensured it could sell the stock as soon as possible after United emerged from bankruptcy.
The agency, which insures defined benefit plans, first learned of the new restriction Sept. 7, when United filed its disclosure statement with a bankruptcy court, says the PBGC spokesman.
The agency “would not have assented to the PBGC Settlement under the terms the debtors now seek to unilaterally impose upon PBGC through the back door of the proposed plan,” it said in an Oct. 13 court filing. The document warns other creditors that United’s breech of those terms “significantly jeopardizes the entire reorganization.”
A spokeswoman for United downplayed the dispute, terming it normal for complex bankruptcies such as United’s, adding: “We expected to resolve any issues and concerns so that the court can approve our disclosure statement next week, and we can continue moving toward exit from bankruptcy.”
United’s exit from 34 months in bankruptcy could be bogged down if it’s forced to revise its capital structure, which relies on $3-billion all-debt financing, to pay the PBGC and other creditors, says turnaround specialist William Brandt.
“Not only has the fat lady not sung, but we’re not conduction auditions yet,” he added.
Citing the PBGC dispute and other concerns, United’s creditors committee said in a filing that it “cannot endorse the plan, recommend a vote to accept the plan or support dissemination of the disclosure statement and plan without resolution and disclosure of the principal outstanding issues.”
In a court document filed yesterday, the committee predicted United’s disclosure statement will likely be revised prior to next Wednesday’s hearing.
