NOTE 11 - DEBT


(In millions)	At December 31,
	2014		2013
United:
Secured
Notes payable, fixed interest rates of 1.42% to 12.00% (weighted average rate of 5.86% as of December 31, 2014), payable through 2026	$	7,464	$	6,279
Notes payable, floating interest rates of the London Interbank Offered Rate (“LIBOR”) plus 0.20% to 5.46%, payable through 2026		1,151		1,243
Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2019		884		893
Term loan, LIBOR subject to a 0.75% floor, plus 3.00%, or alternative rate based on certain market rates plus 2%, due 2021		499		—
6.75% Senior Secured Notes due 2015		—		800
Unsecured
6% Notes due 2026 to 2028 (a)		632		652
6% Senior Notes due 2020 (a)		300		300
6.375% Senior Notes due 2018 (a)		300		300
4.5% Convertible Notes due 2015		202		230
8% Notes due 2024 (a)		—		400
6% Convertible Junior Subordinated Debentures due 2030		—		248
4.5% Senior Limited-Subordination Convertible Notes due 2021 (a)		—		156
Other		101		103

		11,533		11,604

Less: unamortized debt discount		(99)		(169)
Less: current portion of long-term debt—United		(1,313)		(1,368)

Long-term debt, net—United (b)	$	10,121	$	10,067


UAL:
6% Convertible Senior Notes due 2029	$	—	$	104

Long-term debt, net—UAL	$	10,121	$	10,171

(a) UAL is the issuer of this debt. United is a guarantor.

(b) As further described below under “Convertible Debt Securities and Derivatives,” there is a basis difference between UAL and United debt values, because we applied different accounting methodologies. The United debt presented above does not agree to United’s balance sheet by the amount of this adjustment.

The table below presents the Company’s contractual principal payments at December 31, 2014 under then-outstanding long-term debt agreements in each of the next five calendar years (in millions):


	UAL and United
2015	$	1,313
2016		1,195
2017		755
2018		1,269
2019		1,721
After 2019		5,280

	$	11,533

As of December 31, 2014, a substantial portion of the Company’s assets, principally aircraft, route authorities and certain other intangible assets, were pledged under various loan and other agreements. As of December 31, 2014, UAL and United were in compliance with their respective debt covenants. Continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs.

United secured debt

2013 Credit and Guaranty Agreement. On March 27, 2013, United and UAL entered into the Credit and Guaranty Agreement (the “Credit Agreement”) as the borrower and guarantor, respectively. The Company’s Credit Agreement originally consisted of a $900 million term loan due April 1, 2019 and a $1.0 billion revolving credit facility available for drawing until April 1, 2018.

On March 27, 2013, the Company used $900 million from the Credit Agreement, together with approximately $300 million of cash, to retire the entire principal balance of a $1.2 billion term loan due 2014 that was outstanding under United’s Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated as of February 2, 2007 (the “Amended Credit Facility”). The Amended Credit Facility was terminated concurrently with the repayment of the term loan.

In March 2014, United amended the Credit Agreement to reduce the interest rate payable on the existing $893 million term loan from LIBOR plus a margin of 3.0% per annum to LIBOR plus a margin of 2.75% per annum, subject to a 0.75% floor. Borrowings under the revolving credit facility under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 3.0% per annum, or another rate based on certain market interest rates, plus a margin of 2.0% per annum. The principal amount of the term loan must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof, commencing on June 30, 2013, with any unpaid balance due on April 1, 2019. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to 0.75% per-annum on the undrawn amount available under the revolving credit facility.

The Credit Agreement requires United to repay the term loan and any other outstanding borrowings under the Credit Agreement at par plus accrued and unpaid interest if certain changes of control of UAL occur.

In September 2014, United borrowed a $500 million term loan under the Credit Agreement, of which $499 million is outstanding. The loan is due September 2021 and bears interest at LIBOR plus a margin of 3.0% per annum, subject to a 0.75% floor. The $500 million term loan ranks pari passu with the $900 million term loan that United originally borrowed under the Credit Agreement, of which $884 million is outstanding. Also in September 2014, UAL amended its revolving credit facility under the Credit Agreement increasing the capacity from $1.0 billion to $1.35 billion and establishing the maturity date for $1.315 billion in lender commitments as January 2, 2019.

As of December 31, 2014, United had its entire capacity of $1.35 billion available under the revolving credit facility of the Company’s Credit Agreement.

As of December 31, 2014, United had cash collateralized $74 million of letters of credit. United also had $410 million of performance bonds and letters of credit relating to various real estate, customs and aircraft financing obligations at December 31, 2014. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis and the performance bonds have expiration dates through 2019.

6.75% Senior Secured Notes due 2015. In September 2014, United retired, at par, the entire $800 million principal balance of its 6.75% Senior Secured Notes due 2015, which had originally been issued in August 2010.

EETCs. United has $7.2 billion principal amount of equipment notes outstanding issued under EETC financings included in notes payable in the table of outstanding debt above. Generally, the structure of these EETC financings consist of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets.

In August 2014, April 2014 and August 2013, United created separate EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. United expects to receive all proceeds from these pass-through trusts by the end of 2015. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2014 are as follows (in millions, except stated interest rate):


EETC Date	Class	Principal		Final expected distribution date	Stated interest rate		Total debt recorded as of December 31, 2014		Proceeds received from issuance of debt during 2014		Remaining proceeds from issuance of debt to be received in future periods
August 2014	A	$	823	September 2026		3.75%	$	112	$	112	$	711
August 2014	B		238	September 2022		4.625%		32		32		206
April 2014	A		736	April 2026		4.0%		736		736		—
April 2014	B		213	April 2022		4.75%		213		213		—
August 2013	A		720	August 2025		4.3%		720		567		—
August 2013	B		209	August 2021		5.375%		209		165		—

		$	2,939				$	2,022	$	1,825	$	917

United unsecured debt

6% Senior Notes due 2020. In November 2013, UAL issued $300 million aggregate principal amount of 6% Senior Notes due December 1, 2020 (the “6% Senior Notes”). The notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 6% Senior Notes requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest.

6.375% Senior Notes due 2018. In May 2013, UAL issued $300 million aggregate principal amount of 6.375% Senior Notes due June 1, 2018 (the “6.375% Senior Notes”). The notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 6.375% Senior Notes includes the same change of control covenant as the indenture for the 6% Senior Notes.

4.5% Convertible Notes due 2015. The 4.5% Convertible Notes were convertible by holders into shares of UAL common stock at a conversion price of approximately $18.93 per share. During 2014, United used $62 million of cash to purchase and retire $28 million aggregate principal amount of its 4.5% Convertible Notes in market transactions. UAL recorded $34 million of the repurchase cost as a reduction of additional paid-in capital. At December 31, 2014, the remaining balance of these notes was $202 million. In January 2015, the holders of substantially all of the remaining $202 million principal amount of the 4.5% Convertible Notes exercised their conversion option resulting in the issuance of 11 million shares of UAL common stock.

8% Notes due 2024. UAL redeemed in cash at par value all $400 million aggregate principal amount of the 8% Notes due 2024 (the “8% Notes”) on January 17, 2014. The 8% Notes were recorded in current liabilities as of December 31, 2013.

6% Convertible Junior Subordinated Debentures due 2030. In October 2014, United used cash to retire, at par, the entire $248 million principal balance of the 6% Convertible Debentures and the 6% Convertible Preferred Securities, Term Income Deferrable Equity Securities (TIDES). UAL accounted for this debt extinguishment in Nonoperating income (expense): Miscellaneous, net for approximately $64 million in the fourth quarter of 2014.

4.5% Senior Limited-Subordination Convertible Notes due 2021. On January 10, 2014, UAL called all of the 4.5% Notes that remained outstanding for redemption on February 10, 2014. As a result, holders of substantially all of the remaining $156 million outstanding principal amount of the 4.5% Notes exercised their right to convert such notes into approximately five million shares of UAL common stock at a conversion rate of 30.6419 shares of UAL common stock per $1,000 principal amount of 4.5% Notes.

Convertible Debt Securities and Derivatives. UAL, United and the trustee for the 6% Convertible Debentures and the 4.5% Convertible Notes were parties to supplemental indentures that made United’s convertible debt convertible into shares of UAL common stock. For purposes of United separate-entity reporting, as a result of the remaining outstanding debt having been convertible into the stock of a non-consolidated entity, the embedded conversion options in United’s convertible debt are required to be separated and accounted for as though they are free-standing derivatives. As a result, the carrying value of United’s debt, net of current maturities, on a separate-entity reporting basis as of December 31, 2014 and December 31, 2013 was $1 million and $47 million, respectively, lower than the consolidated UAL carrying value on those dates.

In addition, UAL’s contractual commitment to provide common stock to satisfy United’s obligation upon conversion of the debt is an embedded call option on UAL common stock that was also required to be separated and accounted for as though it were a free-standing derivative. The fair value of the indenture derivatives on a separate-entity reporting basis as of December 31, 2014 and December 31, 2013 was an asset of $712 million and $480 million, respectively. The fair value of the embedded conversion options as of December 31, 2014 and December 31, 2013, was a liability of $511 million and $270 million, respectively. The 2013 balances of the indenture derivatives and conversion options included amounts related to the 6% Convertible Debentures and the 4.5% Convertible Notes. The 6% Convertible Debentures and their related indenture derivative and conversion options were retired in 2014. The initial contribution of the indenture derivatives to United by UAL is accounted for as additional paid-in capital in United’s separate-entity financial statements. Changes in fair value of both the indenture derivatives and the embedded conversion options subsequent to October 1, 2010 are recognized in Nonoperating income (expense).

UAL

6% Convertible Senior Notes due 2029. During 2013, UAL issued approximately 28 million shares of UAL common stock pursuant to agreements that UAL entered into with certain holders of its 6% Convertible Senior Notes in exchange for approximately $240 million in aggregate principal amount of these notes held by such securityholders. The Company retired the 6% Convertible Senior Notes acquired in the exchange. In 2014, UAL issued approximately 12 million shares of UAL common stock in exchange for, or upon conversion of, $104 million in aggregate principal amount of UAL’s outstanding 6% Convertible Senior Notes held by the holders of these notes. The Company retired the 6% Convertible Senior Notes acquired in the exchange.

The collateral, covenants and cross default provisions of the Company’s principal debt instruments that contain such provisions are summarized in the table below:


Debt Instrument		Collateral, Covenants and Cross Default Provisions
Credit Agreement		Secured by certain of United’s international route authorities, specified take-off and landing slots at certain airports and certain other assets. The Credit Agreement requires the Company to maintain at least $3.0 billion of unrestricted liquidity at all times, which includes unrestricted cash, short-term investments and any undrawn amounts under any revolving credit facility, and to maintain a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.67 to 1.0 at all times. The Credit Agreement contains covenants that, among other things, restrict the ability of UAL and its restricted subsidiaries (as defined in the Credit Agreement) to incur additional indebtedness and to pay dividends on or repurchase stock. The Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company.
6% Notes due 2026 6% Notes due 2028		The amended and restated indenture for these notes, which are unsecured, contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries (as defined in the indenture) to incur additional indebtedness and pay dividends on or repurchase stock. These covenants cease to be in effect when the indenture covering the 6.375% Senior Notes due 2018 is discharged. The indenture contains events of default that are customary for similar financings.
6.375% Senior Notes due 2018 6% Senior Notes due 2020		The indentures for these notes, which are unsecured, contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries (as defined in the indenture) to incur additional indebtedness and pay dividends on or repurchase stock. The indentures contain events of default that are customary for similar financings.