Bankrupt United Airlines stands to erase 75 percent of its obligation to pay off USD$600 million of debt issued for projects at its Chicago O'Hare hub, in a deal that would leave bondholders with 60 cents on the dollar at best.

Details of the proposed bondholder agreement, which was announced last month, were released in US Bankruptcy Court filings.

The deal would pay up to 58 cents on the dollar to some owners of about USD$202 million of bonds issued for United in 2001 using escrowed construction funds. Separately, two major investors in the bonds, Stark Investments and Shepherd Investments International, would get 60 cents on the dollar from USD$150 million of convertible debt issued by a reorganized UAL.

Other bondholders would be paid with whatever funds were left in the construction and other accounts and would join the ranks of unsecured creditors, according to Jean Medina, a United spokeswoman. She added the deal would cut United's indebtedness in terms of the O'Hare bonds to USD$150 million.

United, which filed a motion that will be heard December 17 asking the court to approve the deal, said it faces the risk of being ordered by the court to pay off all USD$600 million of bonds as well as ongoing litigation.

"Such uncertainty could impede United's ability to intelligently formulate and for that matter confirm a plan of reorganization, and will complicate its efforts to secure exit financing in an already challenging environment," the airline's court filing said.

The airline has made it clear its current dominant presence at O'Hare Airport was a central component of its business plan.

United said even if the court approves the bondholder settlement, that ruling could be appealed by Chicago.

Jennifer Hoyle, a spokeswoman for Chicago's law department, said the proposed settlement agreement did not address all the city's concerns. Chicago has asked the court for the ultimate authority to enforce an airport use agreement with United dealing with the airline's use of gates under a bond default.

United and trustees for the bonds have been at odds over whether the airline must continue to pay off the debt under the airport use agreement. United has maintained that its bankruptcy severs ties to paying off the debt.

The airline has not made any debt service payments on the bonds since filing for bankruptcy protection in December 2002, causing the bonds to default.

(Reuters)