"Group warns against United gate plan"

Monday, August 25, 2003

Group warns against United gate plan
BY DARRELL PRESTON
Bloomberg News


The cost of airport improvements will rise if United Airlines succeeds in
reclassifying its airport-gate leases to "unsecured" from "secured," an
influential bond-traders' association warned.

If United succeeds next month in getting some of the $2.3 billion of
municipal bonds it backs reclassified as unsecured debt, investors will
demand a premium on future municipal bonds for airport improvements, the
Bond Market Association said. The association issued its warning in a
friend-of-the-court filing in U.S. Bankruptcy Court in Chicago.

United, which operates 3,300 flights a day, has missed interest payments on
$1.7 billion in municipal bonds used to fund improvements for O'Hare
International Airport as well as airports in Los Angeles, San Francisco, New
York and Denver.

United wants to shrug off those lease payments securing the bonds through
bankruptcy while continuing to use the facilities. Investors who bought the
bonds are awaiting the court ruling, which will affect when and how much
they will be repaid when the company emerges from bankruptcy, said Michael
DiMauro, a trader with Tejas Securities Group in New Jersey.

''When you sign a lease, and then give that lease as security to
bondholders, and then you change the status of the lease, investors have no
idea what they're dealing with,'' said DiMauro, who owns and trades some of
the bonds. ''Bondholders have to ask if anything else is what it is supposed
to be.''

United, which sought bankruptcy protection in December after failing to get
federal loan guarantees and is struggling to get wage concessions from its
machinists union, has said interest on its municipal debt doesn't have to be
paid while the airline is under bankruptcy protection.

United sees special-facilities bonds as unsecured loans on which it isn't
required to make pay-ments.

The New York-based Bond Market Association, which represents 200 securities
dealers and banks that underwrite and trade $17 trillion of debt securities,
was joined by the National Federation of Municipal Analysts in filing the
brief, which also said United's effort to change the status of its airport
leases to unsecured ''financing transactions'' from secured debt would force
investors to demand a premium for bonds for airport improvements.

The brief said ''the financial marketplace is closely watching the dispute''
between United and its bondholders because a ruling in favor of United
''could undermine critical government activity'' and ''inhibit governmental
financing of airline facilities at airports.''

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