United Airlines 2008 Annual Report Download - page 129

$109 million to amend the credit facility. These costs are being deferred and amortized over the
remaining life of the agreement. The following is a summary of the financial covenants after the May
amendment.
Beginning with the second quarter of 2009, the Company must maintain a specified minimum ratio
of EBITDAR to the sum of the following fixed charges for all applicable periods: (a) cash interest
expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest
expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain other
cash and non-cash credits and charges as further defined by the Amended Credit Facility. The other
adjustments to EBITDAR include items such as foreign currency transaction gains or losses, increases or
decreases in our deferred revenue obligation, share-based compensation expense, non-recurring or
unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of
cash restructuring charges, certain cash transaction costs incurred with financing activities and the
cumulative effect of a change in accounting principle.
The Amended Credit Facility also requires compliance with the following financial covenants: (i) a
minimum unrestricted cash balance of $1.0 billion and (ii) a minimum ratio of market value of collateral
to the sum of (a) the aggregate outstanding amount of the loans plus (b) the undrawn amount of
outstanding letters of credit plus (c) the unreimbursed amount of drawings under such letters of credit
plus (d) the termination value of certain interest rate protection and hedging agreements with the
Amended Credit Facility lenders and their affiliates, of 150% at any time, or 200% at any time following
the release of Primary Routes having an appraised value in excess of $1 billion (unless the Primary
Routes are the only collateral then pledged).
The requirement to meet a fixed charge coverage ratio was suspended for the four quarters
beginning with the second quarter of 2008 and ending with the first quarter of 2009 and thereafter is
determined as set forth below:
Number of
Preceding Months Covered Period Ending
Required
Coverage Ratio
Three June 30, 2009 1.0 to 1.0
Six September 30, 2009 1.1 to 1.0
Nine December 31, 2009 1.2 to 1.0
Twelve March 31, 2010 1.3 to 1.0
Twelve June 30, 2010 1.4 to 1.0
Twelve September 30, 2010 and each quarter ending thereafter 1.5 to 1.0
Failure to comply with any applicable covenants in effect for any reporting period could result in a
default under the Amended Credit Facility unless the Company obtains a waiver of, or otherwise
mitigates or cures, any such default. A default could result in a termination of the Amended Credit
Facility and a requirement to accelerate repayment of all outstanding facility borrowings. Additionally,
the Amended Credit Facility contains a cross default provision with respect to other credit arrangements
that exceed $50 million. Although the Company was in compliance with all required financial covenants
as of December 31, 2008 and the Company is not required to comply with a fixed charge coverage ratio
until the three month period ending June 30, 2009, continued compliance depends on many factors,
some of which are beyond the Company’s control, including the overall industry revenue environment
and the level of fuel costs.
Credit Card Processing Agreement Covenants
The Company has agreements with financial institutions that process customer credit card transac-
tions for the sale of air travel and other services. Under certain of the Company’s card processing
agreements, the financial institutions either require, or have the right to require, that United maintain a
reserve equal to a portion of advance ticket sales that have been processed by that financial institution,
but for which the Company has not yet provided the air transportation (referred to as “relevant advance
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