United Airline's Reorg Plan Leaves Equity Holding the Bag

United filed its draft 130 page Plan of Reorganization and supporting 430 page Disclosure Statement (Parts 1 and 2), and it's looking like a blood bath for unsecured creditors (4-7 cents on the dollar) and equity holders (no distributions whatsoever). Another very well-drafted plan by K&E's bankruptcy group, that contemplates the substantive consolidation of all United entities (this request alone makes the treatment sections of the Plan very cumbersome because the plan is drafted in the alternative to accommodate the possibility that United's substantive consolidation request is denied by the Bankruptcy Court). While sources say that the lack of distributions under the Plan to equity was long expected, the 50% drop in the stock price within moments after the Plan was filed suggests otherwise among professional traders (though the fact that the price is even $.65 a share tells me that people haven't quite yet figured out that "nothing" in bankruptcy really means "nothing").

This plan gives a bone to unsecured creditors, though valuations probably don't really justify it. Rough cut at the numbers suggests that total combined take for all unsecured creditors and common stockholders will be only about 2-3 times total expected professional fees earned in the case. It also makes you wonder about whether holders of publicly-traded shares should ever be restrained from selling at will for fear of impairing net operating loss carryforwards. The 7th Circuit clearly wasn't too impressed with the idea of restraining shareholders from selling shares in order to avoid jeopardizing post-confirmation use of NOL's. Turns out, the use of NOL's will be severely limited anyway under the Plan as presently drafted.

Special thanks to Kevin O'Keefe and his staff at LexBlog for their getting this blog up and running so quickly in order to accommodate the breaking news, as well as my incessant desire to share news and information with others.

More to follow. Thanks for reading.


© Steve Jakubowski 2005



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