United Airlines 2011 Annual Report Download - page 137

Table of Contents
6% Senior Notes. The 6% Senior Notes do not require any payment of principal prior to maturity. Interest is payable semi-annually, in arrears. UAL may
pay interest in cash, or, on or prior to December 31, 2011, UAL may pay interest by issuing UAL common stock with a market value as of the close of
business immediately preceding the relevant interest payment date equal to the amount of interest due or by issuing additional 6% Senior Notes. The 6%
Senior Notes are callable, at UAL’s option, at any time at par, plus accrued and unpaid interest, and can be redeemed with cash, shares of UAL common
stock or a combination thereof. Upon a change in control or the occurrence of a “fundamental change” as defined in the indenture governing the 6% Senior
Notes, UAL has an obligation to redeem the 6% Senior Notes. In the case of such mandatory redemption, UAL may elect to redeem the notes in cash, shares
of UAL common stock or a combination thereof. UAL issued approximately $37 million of 6% Senior Notes during the year ended December 31, 2011 to pay
interest in-kind resulting in approximately $652 million of total outstanding amount.
8% Contingent Senior Unsecured Notes PBGC. UAL is obligated under an indenture to issue to the Pension Benefit Guaranty Corporation (“PBGC”) up
to $500 million aggregate principal amount of 8% Contingent Senior Unsecured Notes PBGC (“8% Notes”) in up to eight equal tranches of $62.5 million if
certain financial triggering events occur (with each tranche issued no later than 45 days following the end of any applicable fiscal year). A triggering event
occurs when UAL’s EBITDAR, as defined in the 8% Notes indenture, exceeds $3.5 billion over the prior 12 months ending June 30 or December 31 of any
applicable fiscal year. The 12-month measurement periods began with the fiscal year ended December 31, 2009 and will end with the fiscal year ending
December 31, 2017. It is the Company’s policy to record an obligation for a tranche at the end of the 12-month measurement period when it is known that a
financial triggering event has been met. If any 8% Notes are issued, the Company will not receive any cash. Any 8% Notes issued will result in a charge to
earnings equal to the fair value of the 8% Notes required to be issued. The payment of liabilities arising in connection with the 8% Notes will be included as
cash flows from operating activities in the Company’s statements of consolidated cash flows. Two tranches of 8% Notes could be issued on the same date if
financial triggering events occur on both EBITDAR measurement periods ended June 30 and December 31 of the same year. UAL common stock can be issued
in lieu of the 8% Notes only if the issuance of such 8% Notes would cause a default under other outstanding securities.
During 2011, a financial triggering event under the 8% Notes indenture occurred at both June 30, 2011 and December 31, 2011 and, as a result, UAL issued
two tranches of $62.5 million of the 8% Notes in January 2012. These tranches will mature June 30, 2026 and December 31, 2026, respectively, with interest
accruing from the triggering event measurement date at a rate of 8% per annum that is payable in cash in semi-annual installments starting June 30, 2012.
These tranches of 8% Notes will be callable, at UAL’s option, at any time at par, plus accrued and unpaid interest. In 2011, UAL recorded a liability for the
fair value of two $62.5 million tranches which totaled $88 million. These charges are integration-related costs classified as special charges because the
financial results of UAL, excluding Continental’s results, would not have resulted in a triggering event under the indenture. The amounts recorded are net of
discounts applied to the future principal and interest payments using market interest rates for similar structured notes. These are the first two occurrences of
UAL’s obligation to issue any tranches of 8% Notes. Upon issuance of the 8% Notes by UAL, they will be pushed down to United and reflected as debt of
United as they are guaranteed by United.
United Amended Credit Facility. Prior to December 21, 2011, United’s Amended Credit Facility had been comprised of two separate tranches: (i) a Tranche
A consisting of a $255 million revolving commitment available for Tranche A loans and standby letters of credit and (ii) a Tranche B consisting of a term
loan which had a balance of $1.219 billion as of December 31, 2011. The Tranche A facility was terminated on December 21, 2011 and the Tranche B term
loan matures on February 1, 2014.
Borrowings under the Amended Credit Facility bear interest at a floating rate, which, at United’s option, can be either a base rate or a London Interbank
Offered Rate (“LIBOR”) rate, plus an applicable margin of 1.0% in the case of base rate loans and 2.0% in the case of LIBOR loans. The Tranche B term loan
requires regularly scheduled semiannual payments of principal equal to $9 million. United may prepay some or all of the Tranche B loans from time to time,
at par plus accrued and unpaid interest.
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