United Airlines 2007 Annual Report Download - page 87

UAL Corporation and Subsidiary Companies
Combined Notes to Consolidated Financial Statements (Continued)
(1) Voluntary Reorganization Under Chapter 11 (Continued)
municipal bonds, $726 million in aggregate principal amount of 4.5% senior limited-subordination convertible notes issued in July 2006 to certain irrevocable
trusts established for the benefit of certain employees, and $500 million in aggregate principal amount of 6% senior notes issued to the PBGC. Pursuant to the
Plan of Reorganization, UAL may also be obligated to issue up to $500 million of 8% senior unsecured notes to the PBGC contingent upon UAL's future
financial performance. See Note 12, "Debt Obligations," for further information.
Significant Bankruptcy Matters Resolved in 2007. During 2007, matters related to the termination of the United Airlines Pilot Defined Benefit Pension
Plan (the "Pilot Plan") were resolved in the Company's favor. The matters generally involved (a) whether the Pilot Plan should have been involuntary terminated
under the Employee Retirement Income Security Act, and (b) the obligation of the Company to make benefit payments under the plan pending the resolution of
such termination. These matters were resolved during 2007 as a result of favorable rulings by the applicable courts and exhaustion of all avenues available for
appeal.
Significant Matters Remaining to be Resolved in Chapter 11 Cases. The following matters remain to be resolved in the Bankruptcy Court or another
court. See Claims Resolution Process, below, for details of special items recognized in the Statements of Consolidated Operations for these matters.
(a)
SFO Municipal Bond Secured Interest. HSBC Bank Inc. ("HSBC"), as trustee for the 1997 municipal bonds related to San Francisco
International Airport ("SFO"), filed a complaint against United asserting a security interest in United's leasehold for portions of its
maintenance base at SFO. Pursuant to Section 506(a) of the Bankruptcy Code, HSBC alleges that it is entitled to be paid the value of that
security interest, which HSBC had claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy
Court rejected as a matter of law HSBC's $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a
minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In
October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million.
United has accrued this amount as its estimated obligation at December 31, 2007. After the Bankruptcy Court denied various post-trial
motions, both parties have appealed to the District Court and those appeals are pending.
(b)
LAX Municipal Bond Secured Interest. There is pending litigation before the Bankruptcy Court regarding the extent to which the Los
Angeles International Airport ("LAX") municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At
December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties
filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value
of the security interest is approximately $33 million, which United has accrued at December 31, 2007. Both parties have appealed to the
District Court and those appeals are pending.
Claims Resolution Process. As permitted under the bankruptcy process, the Debtors' creditors filed proofs of claim with the Bankruptcy Court. Through
the claims resolution process, the Company identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as claims that
were duplicative, amended or superseded by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings, the
Company resolved many claims
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Source: UNITED AIR LINES INC, 10-K, February 29, 2008