United Airlines 2010 Annual Report Download - page 158

fails to maintain (1) a minimum level of unrestricted cash, cash equivalents and short-term investments, (2) a
minimum ratio of unrestricted cash, cash equivalents and short-term investments to current liabilities of 0.25 to
1.0 or (3) a minimum senior unsecured debt rating of at least Caa3 and CCC- from Moody’s and Standard &
Poor’s, respectively. If the minimum debt ratings are not maintained, Continental’s required reserve will be 30%
of relevant advance ticket sales. Additional reserve requirements are summarized in the table below.
If Continental’s unrestricted cash balance is at, or more than, $2.0 billion as of any calendar month-end
measurement date, its required reserve will remain at $25 million. However, if Continental’s unrestricted cash
balance is less than $2.0 billion or certain lower minimum cash amounts, its required reserve will increase to
stated percentages of relevant advance ticket sales that could be significant. Based on Continental’s
December 31, 2010 unrestricted cash balance, Continental was not required to provide cash collateral above the
current $25 million reserve balance.
Under the terms of Continental’s credit card processing agreement with American Express, if a covenant
trigger under the JPMorgan Chase processing agreement requires them to post additional collateral under that
agreement, they would be required to post additional collateral under the American Express processing
agreement. The amount of additional collateral required under the American Express processing agreement
would be based on a percentage of the value of unused tickets (for travel at a future date) purchased by customers
using the American Express card. The percentage for purposes of this calculation is the same as the percentage
applied under the JPMorgan Chase processing agreement, after taking into account certain other risk protection
maintained by American Express.
The following table summarizes required reserves if the minimum thresholds in Continental’s JPMorgan
Chase and American Express agreements are not maintained:
Unrestricted cash, cash equivalents, and short-term investments
balance
Minimum ratio of unrestricted cash, cash
equivalents and short-
term investments to current liabilities
Required% of
Relevant Advance
Ticket Sales
Less than $2.0 billion ............................. N/A 15%
Less than $1.75 billion ............................ N/A 25%
Less than $1.4 billion ............................. Less than 0.25 to 1.0 50% (a)
Less than $1.0 billion ............................. Less than 0.22 to 1.0 100% (a)
(a) Reserve percentage applies if either of the minimum thresholds is not maintained.
An increase in the future reserve requirements and the posting of a significant amount of cash collateral as
provided by the terms of any of the Company’s material credit card processing agreements could materially
reduce the Company’s liquidity.
Guarantees and Off-Balance Sheet Financing.
Fuel Consortia. The Company participates in numerous fuel consortia with other air carriers at major
airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and
responsibilities of the consortia members and provide for the allocation of the overall costs to operate the
consortia based on usage. The consortium (and in limited cases, the participating carriers) have entered into long-
term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through
tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by
various local municipalities. In general, each consortium lease agreement requires the consortium to make lease
payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of
December 31, 2010, approximately $1.2 billion principal amount of such bonds were secured by significant fuel
facility leases in which UAL participates, as to which UAL and each of the signatory airlines has provided
indirect guarantees of the debt. As of December 31, 2010, UAL’s contingent exposure was approximately
$276 million principal amount of such bonds based on its recent consortia participation. As of December 31,
2010, United’s and Continental’s contingent exposure related to these bonds, based on its recent consortia
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