United to Give $1.5 Billion in Notes to PBGC

A settlement agreement between United Airlines and the nation’s pension insurer calls for the government to get securities with a face value of $1.5 billion in exchange for taking over the airline’s four underfunded plans, according to court documents.

United executives have called the agreement, first disclosed at a hearing in the airline’s bankruptcy case last week, crucial to a successful reorganization. The company’s employee unions, however, have said the move was unexpected and have vowed to voice objections.

The Pension Benefit Guaranty Corp.’s move would save United $4.4 billion in cash contributions over the next six years and $1.3 billion for 2005 alone, according to court documents made available Wednesday.

According to the terms of the tentative deal, which is subject to court approval, United would be released from more than $990 million in alleged administrative minimum funding contribution claims and an additional $800 million in other alleged administrative claims.

In exchange, United said its unreleased reorganization plan would include considerations for the PBGC to include $1 billion in notes and an additional $500 million in preferred stock.

United said the agreement was a “linchpin” in the airline’s attempt to obtain from $2 billion to $2.5 billion in exit financing. Chicago-based United and its parent, UAL Corp., filed for bankruptcy protection in December 2002.