UAL Corp.'s trustee banks today objected to United Airlines' proposed agreement that would allow the PBGC to take over the carrier's four underfunded pension plans, according to court papers. U.S. Bank, Bank of New York and Wells Fargo Bank Northwest filed an objection with the U.S. Bankruptcy Court in Chicago saying the proposed pact must be altered to "demonstrate that the agreement will not unduly impact (United's) post-reorganization capital structure."
The agreement calls for United to grant the PBGC up to $1.5 billion in securities as part of an upcoming Chapter 11 reorganization plan, according to UAL's April 26 motion.
Attorneys for the trustee banks argued in the objection that by granting the PBGC securities, UAL is elevating the status of the agency's claims, which "negatively affects the rights of other secured, unsecured and administrative creditors, including the trustees."
In a separate filing today, U.S. Bank, HSBC Bank USA and Bank of New York, which are trustee banks under other credit pacts, objected to the agreement with the PBGC, saying the deal would improperly allow UAL to assign $4.4 billion of unfunded pension liabilities "as they see fit." The structure of the agreement would allow UAL "to improperly manipulate" the reorganization plan confirmation process in the company's favor, the objection said.
The court is set to begin hearing the matter Monday afternoon.