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December 10, 2002
UNITED AIRLINES
UAL DIP Loan Sets Strict Earnings, Cost-cutting
Targets
The strict covenants that four banks have attached to $1.5 billion in
debtor-in-possession financing for UAL Corp. are a strong indication of
the difficulties the newly bankrupt company has encountered in securing
the funding it needs to keep operating, Dow Jones reported. A $1.2
billion facility was agreed to by J.P. Morgan, Citigroup Inc., Bank One
Corp. and CIT Group. Meanwhile, Bank One, which issues Mileage Plus
cards that allow cardholders to accrue mileage rewards with United,
agreed to an additional $300 million term loan, the newswire reported.
GE Capital, the financing arm of General Electric Co., was also
negotiating with the company up until late in the discussions, but
didn't end up joining the bank group.
To get the commitments, UAL revised its business plan to include
additional cost savings and agreed to strict financial covenants. After
winning court approval late on Monday for interim DIP financing, UAL
will have immediate access, after a 10-day period, to $800 million of
the financing, $425 million of that provided by Bank One, Dow Jones
reported. To receive the rest, however, the company must achieve $300
million in cost cuts and a specified level of earnings before interest,
taxes, depreciation, amortization and rent, or EBITDAR, Dow Jones
reported. To read the full article, point your browser to
href='http://online.wsj.com/article/0,,BT_CO_20021210_001964-search,00.html?c…'>
color='#000080'>http://online.wsj.com/article/0,,BT_CO_20021210_001964-search,00.html?c…
Cin%3E%28article%2Dbody%29 (subscription required).
UAL's Bankruptcy Judge Considered Tough, Fair
The judge assigned to oversee UAL Corp.'s massive bankruptcy filing on
Monday is regarded as a thorough and sometimes forceful intellect who
can handle complex material and make quick decisions, several court
observers said, Dow Jones reported. Judge Eugene R. Wedoff is
most known in recent years for his outspokenness regarding consumer
bankruptcies. He was one of the first to provide an in-depth critique of
the Bankruptcy Reform Act of 1994 and provisions of bankruptcy
legislation proposed by Congress in 1998. The comments eventually led to
a number of revisions, the newswire reported.
The UAL bankruptcy will be without question the largest corporate case
Wedoff has presided over in his 15 years as a judge for the Northern
District of Illinois in Chicago. The filing is the largest bankruptcy
filing in aviation history. The suburban Chicago-based company has lost
$4 billion in the last two years, and faced debt payments of $875
million later this week, reported the newswire.
Prior to becoming a bankruptcy judge, Wedoff was a partner at the
Chicago law firm of Jenner & Block. His specialty was litigation,
and he practiced a variety of business, civil rights and constitutional
cases. Wedoff is a frequent lecturer and has presented papers on an
assortment of consumer and business issues. He has served as associate
editor of the ABI Journal and is currently acting as an
ABI director.
UAL Seeks Court Approval on Advisers
Debt-strapped United Airlines parent UAL Corp., which landed in
bankruptcy court on Monday, has lined up an expensive array of legal and
public relations advisers to lead it through the biggest aviation
bankruptcy in U.S. history, Reuters reported. The nation's No. 2 airline
asked U.S. Bankruptcy Judge Eugene Wedoff to approve advisers
that will cost the airline millions of dollars a month, shrinking the
amount of money available to hundreds of creditors and thousands of
employees, the newswire reported. To read the full article, point your
browser to
href='http://money.cnn.com/2002/12/09/news/companies/ual_advisors.reut/'>
color='#000080'>http://money.cnn.com/2002/12/09/news/companies/ual_advisors.reut/.
EDS to Take Charge Related to UAL
Plano,Texas-based Electronic Data Systems Corp. (EDS) expects to take a
fourth-quarter charge of five cents a share from its leasing
arrangements with UAL Corp., Dow Jones reported. EDS said that under
1991 agreements, it has investments of about $40 million related to
leveraged aircraft leases with UAL's United Airlines. The company
expects to record a fourth-quarter provision to write down all of its
investment, resulting in a reduction in fourth-quarter and full-year
earnings of five cents a share, the newswire reported. EDS doesn't
expect United Airlines to make a final determination on the status of
these leases post-bankruptcy in the near term. The computer-services
company said it has no other significant commercial relationships with
United Airlines.
Boeing Capital to Work Closely with UAL in Chapter 11
Boeing Capital, one of UAL Corp.'s biggest creditors, said it will work
closely with the parent of United Airlines and its bankruptcy trustee,
Dow Jones reported. Boeing Capital, the financing unit of jet maker
Boeing Corp., has about $1.3 billion in financing to United in its $11.5
billion portfolio, and the No. 2 carrier is its largest customer. 'We
are obviously concerned by United's decision to file for bankruptcy, but
have been well aware of the possibility,' said Jim Palmer, president of
Boeing Capital, in a statement. He added that any decisions made by the
company will consider the best interests of Boeing stakeholders.
'At this point, we don't know what will happen next,' Boeing Capital
spokesman Russ Young told Dow Jones Newswires. 'There's a full range of
possibilities, from continued payment from UAL to return or recovery of
the airplanes.' The financing is primarily backed by newer 777-200ER
planes delivered in the last three years, the company said.
Chicago Court Adeptly Attracts Chapter 11 Bankruptcy
Filings
With Monday's chapter 11 filing by UAL Corp., along with that of Kmart
Corp. earlier this year, Chicago suddenly has one of the nation's
hottest bankruptcy courts, the Wall Street Journal reported. In chapter
11 proceedings, initiated by troubled companies trying to stay in
business, the Southern District of New York had 1,422 cases for the year
ended Sept. 30, ahead of Delaware's 890. Los Angeles ranked third with
561 cases. Chicago came in at No. 4, with 356. And just last year,
Chicago wasn't even in the top 10. To read the full article, point your
browser to
href='http://online.wsj.com/article/0,,SB1039477970157191593-search,00.html?c…'>
color='#000080'>http://online.wsj.com/article/0,,SB1039477970157191593-search,00.html?c…
article%2Dbody%29 (subscription required).
Credit Card Outstandings for Business-related Expenses
Increases
Credit card outstandings in the United States totaled $723.66 billion at
year-end 2001, owed by 160.1 million cardholders who carried 1.43
billion credit cards of all kinds, according to the Nilson
Report. The amount owed per cardholder averaged $4,520 on 8.9 cards,
of which 4.5 were bank cards issued by Visa and MasterCard. Outstandings
on credit cards include amounts owed by card-holders for personal
expenses, amounts owed on personal card purchases for reimbursable
business expenses and amounts owed on commercial cards issued to
employees, reported Nilson.
The percent of outstandings on credit cards for business-related
expenses has increased from 4.6 percent in 1990 to 7.1 percent in 2001,
and is projected to reach 13.2 percent by 2010, according to the Report.
Bank cards (Visa and MasterCard) accounted for 72.3 percent of credit
card outstandings compared to 27.7 percent for all other credit cards at
the end of 2001, according to Nilson. The average credit card
debt of households that have one or more cards was $9,495 at the end of
last year. Total outstandings on credit cards accounted for 5.65 percent
of disposable income in 1990, increased to 9.79 percent and is expected
to reach 11.92 percent by 2010, reported Nilson. Revolving
balances outstanding (not paid off within one billing cycle) equaled
$553.41 billion, or 76.5 percent, at year end. Another $134.35 billion,
or 18.6 percent, was paid off in full before any finance charges are
added, according to the Report.
Dow Chemical/Breast-implant Verdict Overturns 1997 Ruling
Dow Chemical Co. said an appeals court reversed verdict against the
company from a 1997 silicone breast implant trial, Dow Jones reported.
Dow Chemical owns half of breast-implant manufacturer Dow Corning Corp.,
which sought chapter 11 bankruptcy reorganization in 1995. In a press
release on Monday, Dow Chemical said the 4th Circuit Court of Appeals in
Louisiana on Dec. 5 sided with the company in its appeal concerning
court rulings and a preliminary verdict in a 1997 trial in New
Orleans.
Did Citigroup, Chase Aid in Enron Scam?
Congressional investigators charged on Monday that Citigroup Inc. and
J.P. Morgan Chase & Co. Inc. helped Enron Corp. hide debt and pad
profits through previously undisclosed deals that show financing abuses
by Wall Street banks, Reuters reported. 'By concocting elaborate schemes
of so-called 'structured finance' with no legitimate business purpose
other than tax and accounting manipulation, Citigroup and J.P. Morgan
Chase helped Enron deceive the investing public,' claimed Michigan Sen.
Carl Levin, ranking Democrat on the panel, in a statement, the newswire
reported.
Sources close to the committee said lawmakers do not view numerous
legislative and rule-making initiatives under way in response to the
Enron scandal and others as adequate to stem alleged abuse of structured
finance, according to Reuters. Regulators from the Securities and
Exchange Commission, the Federal Reserve and the Office of the
Comptroller of the Currency were expected to testify at the hearing.
Nucor Completes Acquisition of Plants from Birmingham
Steel
Nucor Corp. completed the purchase of Birmingham Steel Corp.'s plants,
adding 12 percent to its capacity for making reinforced steel bar,
I-beams and other products used in building and highway construction,
Bloomberg News reported. The transaction also activated Birmingham
Steel's plan to reorganize under chapter 11 bankruptcy protection.
Birmingham shareholders will get 47 cents for each share and the stock
will be canceled, the company said in a Business Wire release. Nucor,
the No. 2 U.S. steelmaker, has been buying plants that make products
similar to its own and agreed in May to pay $615 million for
Birmingham's factories. The production gained increases capacity to 19
million tons a year from 17 million.
Kmart to Restate Financial Results for Prior Fiscal Years
Kmart Corp., the largest U.S. retailer to file for bankruptcy, said it
will restate results for prior years and the first half of this fiscal
year to reflect adjustments identified in its review of accounting
practices, Bloomberg News reported. None of the changes should impact
the liquidity or increase obligations requiring a future use of cash,
Kmart said in a statement sent on PRNewswire.
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