United Airlines 2009 Annual Report Download - page 62

Table of Contents
Amended Credit Facility Covenants. The Company’s Amended Credit Facility requires compliance with certain covenants. The Company was in
compliance with all of its Amended Credit Facility covenants as of December 31, 2009 and 2008. In May 2008, the Company amended the terms of certain
financial covenants of the Amended Credit Facility. A summary of financial covenants, after the May amendment, is included below.
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 losses, increases 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 (as defined by the
Amended Credit Facility) of $1.0 billion, and (ii) a minimum collateral ratio of 150% at any time, or 200% at any time following the release of the Pacific
(Narita, China and Hong Kong) and Atlantic (London Heathrow) routes (together, the “Primary Routes”) having an appraised value in excess of $1 billion on the
aggregate, unless the Primary Routes are the only collateral then pledged, in which case a minimum collateral ratio of 150% is required. The minimum collateral
ratio is calculated as the 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 and (d) the termination value of certain interest rate protection and
hedging agreements with the Amended Credit Facility lenders and their affiliates.
As discussed above, in connection with the issuance of the Senior Secured Notes and the Senior Second Lien Notes in January 2010, certain assets
currently encumbered under the Amended Credit Facility are expected to be released and substituted by replacement collateral consisting of aircraft, spare
engines, primary slots at LaGuardia and Washington Reagan and flight simulators with an appraised value of approximately $830 million. The assets expected to
be released consist of route authorities to operate between the United States and Japan, and beyond Japan to points in other countries, certain airport takeoff and
landing slots and airport gate leaseholds utilized in connection with these routes, and were used as collateral for the January 2010 offering.
The Company’s requirement to meet the fixed charge coverage ratio is determined as set forth below:
Number of
Preceding
Months
Covered Period Ending
Required
Fixed Charge
Coverage Ratio
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
The Amended Credit Facility contains a cross default provision with respect to final judgments that exceed $50 million. Although the Company was in
compliance with all required financial covenants as of December 31, 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. There are no assurances that the Company will continue to
comply with its debt covenants. Failure to comply with applicable covenants in any reporting period would result in a default under the Amended Credit Facility,
which could have a material adverse impact on the Company depending on the Company’s ability to obtain a waiver or amendment of such covenants, or
otherwise mitigate the impact of the default.
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