United Airlines 2010 Annual Report Download - page 147

Failure to comply with any applicable covenants in effect for any reporting period could result in a default
under the Amended Credit Facility unless United obtains a waiver of or amendment of such covenants, 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.
United Senior Secured Notes. In January 2010, United issued $500 million aggregate principal amount of
9.875% Senior Secured Notes due 2013 (the “United Senior Secured Notes”) and $200 million aggregate
principal amount of 12.0% Senior Second Lien Notes due 2013 (the “United Senior Second Lien Notes”)
(collectively, the “United Senior Notes”). The United Senior Notes are guaranteed on a senior unsecured basis by
UAL and UAL’s subsidiaries that are guarantors or direct obligors under its Amended Credit Facility. The United
Senior Notes are secured by United’s route authority 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. Among other required covenants, the indentures governing the United Senior Notes
contain a covenant that requires the Company to maintain a minimum ratio of collateral value to debt obligations,
which if not met may result in the acceleration of payments under the United Senior Notes. United may meet this
minimum ratio by providing certain non-cash collateral and/or by redeeming, repurchasing or repaying in part the
United Senior Notes pursuant to any available optional redemption provisions of the indentures governing the
United Senior Notes. In addition, if United fails to maintain a collateral coverage ratio of 1.5 to 1.0 on the United
Senior Secured Notes, United must pay additional interest on the United Senior Notes at the rate of 2% per
annum until the collateral coverage ratio on the United Senior Secured Notes equals at least 1.5 to 1.0. The
indentures governing the United Senior Notes also contain a cross-acceleration provision pursuant to which a
default resulting in the acceleration of indebtedness under the Amended Credit Facility would result in a default
under such indentures. A default under the United Senior Notes could allow holders to accelerate the maturity of
the obligations in these indentures.
United EETCs. United has several enhanced equipment trust certificate (“EETC”) financings outstanding.
Generally, the structure of all of these EETC financings consist of pass-through trusts created by United to issue
EETCs. The EETCs represent fractional undivided interests in the respective pass-through trusts and are not
obligations of United. The proceeds of the issuance of the EETCs are used to purchase equipment notes which
are issued by United and secured by United’s aircraft. The payment obligations of United under the equipment
notes are fully and unconditionally guaranteed by UAL. In 2009, through two transactions, United created three
pass through trusts to issue a total of approximately $1.5 billion of pass through certificates. In connection with
these transactions, United issued $161 million of equipment notes in 2009 and the remaining amount of
equipment notes ($1.308 billion) in 2010. Proceeds received from the sale of EETCs are initially held by a
depository in escrow for the benefit of the certificate holders until United issues equipment notes to the trust,
which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by
United and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the
depositary are not United’s assets. Approximately $1.1 billion of the 2010 proceeds was used to repay equipment
notes related to EETCs that had been issued in prior years and the remaining amount was used for general
corporate purposes. See Note 16 for additional information related to the United EETCs.
Continental
6.75% Notes. In August 2010, Continental issued $800 million aggregate principal amount of 6.75% senior
secured notes due 2015 (the “Continental Senior Secured Notes”). Continental may redeem some or all of the
Continental Senior Secured Notes at any time on or after September 15, 2012 at specified redemption prices. If
Continental sells certain of its assets or if it experiences specific kinds of a change in control, Continental will be
required to offer to repurchase the notes. Continental’s obligations under the notes are unconditionally
guaranteed by certain of its subsidiaries. The Continental Senior Secured Notes and related guarantees are
secured by certain of Continental’s U.S.-Asia and U.S.-London Heathrow routes and related assets, all of the
outstanding common stock and other assets of the guarantor subsidiaries and substantially all of the other assets
of the guarantors, including route authorities and related assets.
145