RLPC-United Airlines lenders oppose loan amendment
NEW YORK (Reuters) - Lenders in UAL Corp.(UAUA.O) subsidiary United Airlines' bank loan are opposing an amendment to its credit agreement that would allow the company to implement $500 million in shareholder initiatives, sources told Reuters Loan Pricing Corp. on Tuesday.
The amendment, launched November 27, requires an approval from at least 50 percent of the lenders.
Lenders are opposing the amendment because United is proposing to pay down only $350 million of bank debt, sources told Reuters LPC.
Loan investors are demanding that the company repay $500 million of the term loan if it wants to pursue $500 million of shareholder friendly initiatives. Investors also want pricing on the loan to be increased from 200 basis points over the London interbank offered rate.
United Airlines obtained a rate of 200 basis points over Libor on its $1.8 billion term loan when it managed to refinance its bank debt earlier this year, a time when conditions in the loan market were extremely frothy.
Since then, the credit markets have experienced a severe downturn, and United Airlines' bank loan prices have slumped. The average bid on its $1.8 billion term loan has declined from as high as 100.5 to as low as 93.5, according to LSTA/LPC Mark-to-market pricing.
Tuesday, the company's loan was quoted in the 94.25-to-95.25 range, down from the 94.5-to-95.5 range on Monday, sources said.
Lenders also are seeking to remove language from the existing bank loan that prevents the loan from being repaid if UAL Corp. participates in a merger. This language would allow UAL to maintain a loan paying only 200 basis points over Libor in its capital structure if a change-of-control event takes place.
UAL Corp. did not respond to an email seeking comment.
Recent media reports have suggested that UAL is interested in a merger with Delta Air Lines(DAL.N), though Delta has denied any such talks. UAL chief executive Glenn Tilton recently indicated that consolidation "would be a plus" for the troubled U.S. airline industry in comments to reporters after addressing the Boston College Chief Executives Club November 27.
United Airline obtained its $1.8 billion term loan as part of a $2.1 billion credit agreement. The balance of the loan is a $300 million revolver. The loan is led by J.P. Morgan and Citigroup.
(Reporting by Faris Khan; editing by Dena Aubin)
