United Continental Holdings Inc., Chicago, parent of United Airlines, is preparing to give a $62.5 million note to the PBGC, the company's first payment to the agency for pension plans the PBGC took over in 2005 while UAL Corp. was in Chapter 11 bankruptcy protection.
The note, which carries an 8% annual interest payment to PBGC, will mature June 20, 2026 .
The issuance of the note was triggered by the company's reaching a $3.5 billion profitability threshold, which came as a result of UAL's merger with Continental Airlines in 2010, United spokesman Michael Trevino said in an interview.
The company has until February 2012 to issue the note.
When the Pension Benefit Guaranty Corp. took over United's four pension plans in April 2005, the plans were underfunded by $9.8 billion, of which PBGC guaranteed $6.6 billion. The four plans covered 121,500 participants at the time.
The indenture agreement called for United to repay up to $500 million in eight equal payments of $62.5 million whenever the $3.5 billion profitability threshold was reached.
The company assesses its profitability twice each year, in June and December. Future payments will be determined by profitability levels during each period.
In its most recent 10-K filing with the SEC on Thursday, United Continental noted that the merger increases the likelihood that all payments will be issued, “as well as the likelihood that the timing of any such issuances would be accelerated,” but that it could not predict the exact timing of the payments given the potentially adverse impact on the company's liquidity or operating costs.