bankruptcy is the largest in the history of commercial aviation, so it should come as no surprise that the ripple effects will be felt far outside the industry itself. But a close examination of UAL's bankruptcy documents reveal how broad those effects will be, with financial companies, state governments and even the caterers left in the lurch.
In its Chapter 11 filing to the U.S. Bankruptcy Court for the Northern District of Illinois, UAL gave a consolidated list of the 20 creditors holding the largest unsecured claims. Because unsecured claims are not backed by collateral, such as aircraft loans or mortgages on property, the chance that these creditors will be paid in full is extremely unlikely. Smart investors should check the list of creditors closely to see if their investment will take a hit from UAL exposure.
In fact, smart investors would be wise to sell their shares in UAL completely. Under bankruptcy, creditors agree to receive less than they're owed in exchange for an equity stake in the new company. As a result, the old stock gets canceled and current equityholders will end up with nothing. In part because of short-sellers covering and in part because some small investors don't quite understand
how bankruptcy means the little folks get nothing, UAL shares rose 18% on Monday.
The specifics of the bankruptcy settlement will be decided by a judge, but debtholders, bond owners and suppliers will get far less than they're owed. According to court documents, UAL is $21.5 billion in debt, and some companies -- such as
Bank of New York
-- could face billion-dollar writedowns.
Here's a look at who's on the hook:
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