United Airlines 2010 Annual Report Download - page 18

Among other covenants, the Amended Credit Facility requires UAL, United and certain of United’s material
subsidiaries who are guarantors under the Amended Credit Facility to maintain a minimum unrestricted cash
balance (as defined in the Amended Credit Facility) of $1.0 billion at all times; a minimum ratio of collateral
value to debt obligations (that may increase if a specified dollar value of the route collateral is released); and a
minimum fixed charge coverage ratio of 1.5 to 1.0 for twelve month periods measured at the end of each calendar
quarter.
Among other covenants, the indentures governing the Senior Notes require the issuer to maintain a
minimum ratio of collateral value to debt obligations. If the value of the collateral underlying that issuer’s Senior
Notes declines such that the issuer no longer maintains the minimum required ratio of collateral value to debt
obligations, the issuer may be required to pay additional interest at the rate of 2% per annum, provide additional
collateral to secure the noteholders’ lien or repay a portion of the Senior Notes.
The Company’s ability to comply with the covenants in the Amended Credit Facility and the indentures
governing the Senior Notes may be affected by events beyond its control, including the overall industry revenue
environment and the level of fuel costs, and the Company may be required to seek waivers or amendments of
covenants, repay all or a portion of the debt or find alternative sources of financing. The Company cannot
provide assurance that such waivers, amendments or alternative financing could be obtained or, if obtained,
would be on terms acceptable to the Company.
A breach of certain of the covenants or restrictions contained in the Amended Credit Facility or indentures
governing the Senior Notes could result in a default and a subsequent acceleration of the applicable debt
obligations. In addition, the indentures governing the United Senior Notes 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 these indentures could allow holders of the
United Senior Notes to accelerate the maturity of the obligations in these indentures.
See Note 14 to the financial statements included in Item 8 of this report for further discussion of our
operating and financial covenants under certain of the Company’s financing agreements.
The Company may be unable to continue to comply with certain covenants in agreements with financial
institutions that process customer credit card transactions, which, if not complied with, could materially and
adversely affect the Company’s liquidity.
United and Continental have agreements with financial institutions that process customer credit card
transactions for the sale of air travel and other services. Under certain of United’s and Continental’s credit card
processing agreements, the financial institutions either require, or under certain circumstances have the right to
require, that United and Continental maintain a reserve equal to a portion of advance ticket sales that have been
processed by that financial institution, but for which United and Continental have not yet provided the air
transportation (referred to as “relevant advance ticket sales”).
United’s credit card processing agreement with Paymentech and JPMorgan Chase Bank, N.A. (“JPMorgan
Chase”) contains a cash reserve requirement, determined based on the amount of unrestricted cash held by United
as defined under the Amended Credit Facility. If United’s unrestricted cash balance is at or more than $2.5
billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However,
if United’s unrestricted cash balance is less than $2.5 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 United’s December 31, 2010 unrestricted cash balance, United was not required to provide cash
collateral above the current $25 million reserve balance.
Under United’s credit card processing agreement with American Express, in addition to certain other risk
protections provided to American Express, United is required to provide reserves based primarily on its
unrestricted cash balance and net current exposure as of any calendar month-end measurement date with United’s
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