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Item 1.01
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Entry into a Material Definitive Agreement
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Indenture Governing 6.50% Senior Secured Notes due 2027
On July 2, 2020, United
Airlines, Inc. (“United”) announced the completion of the private offering by Mileage Plus Holdings, LLC (“MPH”),
a direct wholly owned subsidiary of United, and Mileage Plus Intellectual Property Assets, Ltd., an indirect wholly owned subsidiary
of MPH (“MIPA” and, together with MPH, the “Issuers”) of an aggregate of $3.8 billion principal amount
of 6.50% senior secured notes due 2027 (the “Notes”). The Notes are guaranteed by each subsidiary of MPH (collectively,
the “MPH Subsidiary Guarantors”), United, United’s parent company, United Airlines Holdings, Inc. (“UAL”
and, together with United, the “Parent Guarantors”), and certain subsidiaries of UAL (the “UAL Subsidiary
Guarantors” and, collectively with the MPH Subsidiary Guarantors and the Parent Guarantors, the “Guarantors”).
The Notes were issued pursuant to an Indenture, dated as of July 2, 2020 (the “Indenture”), among MPH, MIPA, the Guarantors
and Wilmington Trust, National Association, as trustee and collateral custodian. MPH and MIPA lent the net proceeds from
the offering of the Notes to United, after depositing a portion of such proceeds in a reserve account to cover future interest
payments on the Notes.
The Notes will mature
on June 20, 2027. The Notes bear interest at a rate of 6.50% per annum, payable in quarterly installments on March 20, June 20,
September 20 and December 20 of each year, beginning September 21, 2020 (each a “Payment Date”).
Senior Secured Term
Loan Facility
On July 2, 2020, concurrently
with the issuance of the Notes, the Issuers and the Guarantors entered into a credit agreement (the “Credit Agreement”)
with Goldman Sachs Bank USA, as administrative agent (the “Administrative Agent”), the lenders party thereto, the lead
arrangers named therein and Wilmington Trust, National Association, as master collateral agent and collateral administrator. The
Credit Agreement provides for a term loan facility in an aggregate principal amount of up to $3.0 billion (the “Term Loan
Facility”). On the Closing Date, the Issuers borrowed $3.0 billion in aggregate principal amount under the Term Loan Facility,
the proceeds of which MIPA and MPH lent to United, after depositing a portion of such proceeds in a reserve account
to cover future interest payments.
The scheduled maturity
date of the Term Loan Facility is June 20, 2027. Loans outstanding under the Term Loan Facility will bear interest at a variable
rate equal to LIBOR (but not less than 1.0% per annum), plus a margin of 5.25% per annum, payable on each Payment Date.
Terms of the Notes
and the Loans under the Term Loan Facility
The terms of the Notes and the loans outstanding under the Term
Loan Facility are substantially identical and are described below.
The Notes and the Term Loan Facility will be secured by first-priority
security interests in substantially all of the assets of the Issuers, other than excluded property and subject to certain permitted
liens (the “Issuer Collateral”), including specified cash accounts that include the accounts into which MileagePlus
revenues are or will be paid by United’s marketing partners and by United. The guarantees of the Parent Guarantors will be
secured by a first-priority security interest in the equity of MPH and certain other collateral owned by the Parent Guarantors,
including the Parent Guarantors’ rights under various intercompany agreements related to the MileagePlus program, in each
case, subject to permitted liens (collectively, the “Parent Collateral”). The guarantees of the MPH Subsidiary Guarantors
will be secured by first-priority security interests in substantially all of the assets of the MPH Subsidiary Guarantors, other
than excluded property and subject to permitted liens (the “Subsidiary Collateral” and, together with the Issuer Collateral
and the Parent Collateral, the “Collateral”). The guarantees of the UAL Subsidiary Guarantors will be unsecured.
The Notes and the
Term Loan Facility and the guarantees of the MPH Subsidiary Guarantors rank equally in right of payment with all of the
Issuers’ and the MPH Subsidiary Guarantors’ existing and future senior indebtedness; are effectively senior to
all existing and future indebtedness of the Issuers and the MPH Subsidiary Guarantors that is not secured by a lien,
or is secured by a junior-priority lien, on the Collateral, to the extent of the value of the Collateral; are effectively
subordinated to any existing or future indebtedness of the Issuers and the MPH Subsidiary Guarantors that is secured by liens
on assets that do not constitute part of the Collateral, to the extent of the value of such assets; and rank senior in right
of payment to the Issuers’ and the MPH Subsidiary Guarantors’ future subordinated indebtedness. The
guarantees of the Parent Guarantors rank equally in right of payment with all of the Parent Guarantors’ existing and
future senior indebtedness; are effectively senior to all existing and future indebtedness of the Parent Guarantors that is
not secured by a lien, or is secured by a junior-priority lien, on the Parent Collateral, to the extent of the value of the
Parent Collateral; are effectively subordinated to any existing or future indebtedness of the Parent Guarantors that is
secured by liens on assets other than the Parent Collateral, to the extent of the value of such assets; and rank senior in
right of payment to the Parent Guarantors’ future subordinated indebtedness. The guarantees of the UAL Subsidiary
Guarantors rank equally in right of payment with all of the UAL Subsidiary Guarantors’ existing and future senior
indebtedness; rank senior in right of payment to the UAL Subsidiary Guarantors’ future subordinated indebtedness; and
are effectively subordinated to any existing or future secured indebtedness of the UAL Subsidiary Guarantors to the extent of
the value of the collateral securing such indebtedness. The Notes, the Term Loan Facility and the guarantees will also be
structurally subordinated to all existing and future obligations of UAL’s subsidiaries, other than the Issuers, that do
not guarantee the Notes or the Term Loan Facility.
The principal on the Notes
will be repaid in quarterly installments of $190.0 million, or 5% of the aggregate principal amount of the Notes, on each Payment
Date, beginning on September 20, 2022. The principal on loans outstanding under the Term Loan Facility will be repaid in quarterly
installments of $150.0 million, or 5% of the aggregate principal amount of the Term Loan Facility, on each Payment Date, beginning
on September 20, 2022. Such amortization payments will be subject to the occurrence of certain early amortization events, including
failure to satisfy the Peak Debt Service Coverage Ratio on any Determination Date (as defined in the Indenture and the Credit Agreement).
The “Peak Debt Service Coverage Ratio” means the requirement that the debt service coverage ratio shall not be less
than (A) so long as the DSCR Step-up Period (as defined in the Indenture and the Credit Agreement) is not in effect, (i) for the
Determination Dates in September 2020, December 2020 and March 2021, 0.75 to 1.0; (ii) for the Determination Dates in June 2021,
September 2021 and December 2021, 1.0 to 1.0; (iii) for the Determination Dates in March 2022 and June 2022, 1.5 to 1.0; and (iv)
for any Determination Date thereafter, 2.0 to 1.0 and (B) for any Determination Date on which a DSCR Step-up Period is in effect,
2.0 to 1.0.
The Issuers, at
their option, may redeem some or all of the Notes or the loans outstanding under the Term Loan Facility on or after June 30,
2023 at the redemption prices set forth in the Indenture and the Credit Agreement, respectively. Prior to June 30, 2023, the
Issuers may redeem some or all of the Notes or the loans outstanding under the Term Loan Facility at a redemption price equal
to 100% of the principal amount of Notes or loans outstanding under the Term Loan Facility being redeemed, plus the
“make-whole” premium described in the Indenture and the Credit Agreement, respectively. Upon the occurrence of
certain mandatory prepayment events and mandatory repurchase offer events, the Issuers will be required to make a prepayment
on the Notes and loans outstanding under the Term Loan Facility, or offer to repurchase the Notes and repay the loans
outstanding under the Term Loan Facility, pro rata to the extent of any net cash proceeds received in connection with such
events, at a price equal to 100% of the principal amount to be prepaid, plus an applicable premium. In addition, upon a
change of control of UAL, the Issuers may be required to make an offer
to prepay the Notes and the Term Loan Facility at a price equal to 101% of the respective principal amounts thereof, plus
accrued and unpaid interest, if any, to, but not including, the purchase date.
The Indenture and the
Credit Agreement contain certain covenants that limit the ability of the Issuers, their restricted subsidiaries and, in certain
circumstances, UAL and United, to, among other things: (i) make restricted payments; (ii) incur additional indebtedness; (iii)
enter into certain transactions with affiliates; (iv) create or incur certain liens on the Collateral; (v) merge, consolidate or
sell assets; (vi) engage in certain business activities; (vii) sell, transfer or otherwise convey the Collateral; (viii) sell pre-paid
miles in excess of $500.0 million in the aggregate; (ix) exit from, terminate or substantially reduce the MileagePlus business
or modify the terms of the MileagePlus program, in certain circumstances as may be expected to have a material adverse effect;
and (x) terminate, amend, waive, supplement or modify the IP Licenses (as defined below), except under certain circumstances.
The Indenture
and the Credit Agreement restrict United’s ability to terminate or modify the
intercompany agreements governing the relationship between United and the MileagePlus program, including the agreement governing
the rate that United must pay MPH for the purchase of miles and United’s obligation to make certain seat inventory
available to MPH for redemption.
The Indenture and the
Credit Agreement also require the Issuers and, in certain circumstances, UAL and United, as applicable, to comply with certain
affirmative covenants, including depositing Transaction Revenues (as defined in the Indenture and the Credit Agreement) in a revenue
account, with amounts to be distributed for the payment of fees, principal and interest on the Notes and the loans outstanding
under the Term Loan Facility pursuant to a payment waterfall described in the Indenture and Credit Agreement, respectively, and
certain financial reporting requirements. In addition, the Indenture and the Credit Agreement require UAL to maintain minimum liquidity
at the end of any business day of at least $2.0 billion.
In connection with the
issuance of the Notes and entry into the Credit Agreement, United and MPH contributed to MIPA, which
is a newly-formed subsidiary structured to be bankruptcy remote, their respective rights to certain MileagePlus intellectual property,
including brands and member data. United and MPH will have the right to use the contributed intellectual property pursuant to a
license agreement with MIPA (the “IP License”). The IP License will be terminated, and United’s right to use
such intellectual property will cease, upon specified termination events, including, but not limited to, United’s failure
to assume the IP License and various related intercompany agreements in a restructuring process. The termination of the IP License
would be an event of default under the Indenture and the Credit Agreement and in certain circumstances would trigger a liquidated
damages payment in an amount that is several multiples of the principal amount of the Notes and the Term Loan Facility. MIPA
and MPH will continue to be wholly-owned subsidiaries of UAL and United, and the MileagePlus program is expected to continue to
operate as it has in the past.
Subject to certain materiality thresholds, qualifications,
exceptions, “baskets” and grace and cure periods, the Indenture and the Credit Agreement also include certain
customary events of default, including payment defaults, covenant defaults, cross-defaults to certain indebtedness,
bankruptcy events, and a change of control of an Issuer. Upon the occurrence of an event of default, at the discretion of the
Permitted Noteholders (as defined in the Indenture), the outstanding obligations under the Indenture may be accelerated and
become due and payable immediately, and at the discretion of the Required Lenders (as defined in the Credit Agreement), the
outstanding obligations under the Credit Agreement may be
accelerated and become due and payable immediately.
The Credit Agreement also includes certain customary representations
and warranties. The statements embodied in those representations and warranties were made for purposes of the contract between
the parties and may be subject to qualifications and limitations agreed by the parties in connection with negotiating the terms
of that contract. In addition, certain representations and warranties were made as of a specified date, may be subject to
a contractual standard of materiality different from those generally applicable to investors, or may have been used for the purpose
of allocating risk between the parties rather than establishing matters as facts.