S&P;, Moody's are OK with UAL loan

THE BALTIMORE SUN

United Airlines parent UAL Corp. received good grades yesterday from two major debt rating companies on a $3 billion loan it secured.

The ratings by Moody's Investor Service and Standard & Poor's were viewed by the company as validation it has made the right moves to become more competitive while in bankruptcy.

The announcement about the $3 billion loan came yesterday after a nearly two-hour meeting between the airline's financial executives and bankers at the Waldorf Astoria Hotel in New York.

The financing was one of the final hurdles for the airline to end its three-year bankruptcy. The company remains on pace to leave court protection by Feb. 1, said Kathryn Micelles, United's vice president and treasurer.

"From my perspective, they really validate the work the company's done over the past few years to improve our costs as well as our revenue performance," she said. "We are exiting from bankruptcy a much stronger company, poised to successfully compete in the marketplace."

The company reached a deal last year with JPMorgan Chase & Co., Citigroup Inc., and GE Capital for the six-year exit loan. Yesterday's meeting was to launch the syndication of the loans.

The airline was also heartened by the ratings provided yesterday by Standard & Poor's and Moody's Investors Service. Analysts at both ratings houses were optimistic about the airline's future.

United faces challenges, including "high and volatile fuel prices and fierce competition from low-cost carriers in the U.S. domestic market" and a "highly leveraged financial profile," Standard & Poor's Philip Baggaley said in an analysis prepared for investors.

"These weaknesses are mitigated to some extent by United's extensive and well-positioned route system (providing good revenue potential, especially on international routes), and by reductions in labor costs and financial obligations achieved in bankruptcy," he said.

Baggaley's analysis notes that United's post-bankruptcy plan assumes oil prices of about $50 a barrel, although it is more likely that the airline will face prices around $60, he said. United should be able to make up some of the difference with higher fares, he said.

Standard & Poor's assigned the company's exit financing facility a B+, with a recovery rating of 1 - meaning it expects the airline to fully recover after bankruptcy. It also anticipates assigning the post-bankruptcy company a B rating with a stable outlook.

Moody's gave the financing facility a B1 rating. The company received a B2 corporate family rating and a speculative grade liquidity risk assessment of 2. The ratings outlook was judged stable.

A bankruptcy court hearing on the airline's exit plan begins Jan. 18. It remains the final hurdle before United can leave bankruptcy, where it has operated since December 2002. In the years since, United has cut $7 billion in spending, including dropping its pension programs and successfully seeking two rounds of pay and benefit cuts from workers.

Also yesterday, United revised its estimate of losses for 2005 to $5.3 billion, up from $3.7 billion forecast in September, according to projections filed with securities regulators.

The airline projects net income of $11.6 billion this year. That is expected to drop to $517 million in 2007, but rise to $939 million by 2010.

Mark Skertic writes for the Chicago Tribune.

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