fireman0174

PBGC: Northwest Ch 11 Plan Lacks Candor
Friday March 23, 5:59 pm ET
PBGC Says Northwest Airlines' Chapter 11 Plan Lacks Candor About Pensions

WASHINGTON (AP) -- The federal Pension Benefit Guaranty Corp. wants Northwest Airlines Corp. to make it clear to creditors that the airline will remain stuck with "billions of dollars" in pension liabilities if it exits bankruptcy proceedings under its current Chapter 11 plan.

In court papers filed Friday, the agency said the disclosure is "critically important" to Northwest's unsecured creditors because they would end up owning more than 90 percent of the new stock Northwest aims to issue upon its Chapter 11 exit. The Eagan, Minn.-based airline's reorganization plan calls for creditors to swap their debt for the new stock.

But the PBGC said Northwest hasn't been frank about the implications of its pension liabilities in the Chapter 11 disclosure statement it intends to send to creditors. Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan is scheduled to consider the adequacy of that statement at a court hearing Monday. The PBGC asked Gropper to order Northwest to amend it.

"The disclosure statement should clearly state what is now, at best, implied and buried between the lines," the PBGC said. The implication, it said, is that the pension plans have not been terminated -- and will not be -- under Northwest's bankruptcy proceedings. Accordingly, the pension liability will "continue unaffected."

The PBGC guarantees the pension benefits of about 44 million Americans who work for private employers. At the time of Northwest's bankruptcy filing in September 2005, it estimated the airline's unfunded pension liability at $5.7 billion. In court documents this year, Northwest said it would owe the PBGC $4.2 billion if it terminated its three pension plans.

A Northwest spokesman wasn't available for comment Friday.

The PBGC said Northwest and its subsidiaries "do not propose to terminate any of the pension plans." But that intention should be stated explicitly in the company's reorganization plan so that creditors can take the liability into account when they decide whether to swap debt for new stock in the company.

"In order for them to have adequate information from which to decide whether to exchange their debt claims for equity, they need to understand that, following confirmation of the plan of reorganization, (Northwest) will remain fully liable for all funding, premiums, unfunded pension-benefit liabilities upon termination, and other potential liabilities," the PBGC said.

Northwest's disclosure statement has also drawn fire from a group of big distressed-debt investors who collectively hold $1.5 billion in unsecured claims against the airline. In court papers Friday, the investors said Northwest is seeking to impose on its new stockholders "numerous onerous provisions that will likely adversely affect the market value and marketability of the new common stock."

Those investors include Bear Stearns Investment Products, Deutsche Bank Securities and several hedge funds. They asked Gropper to reject the disclosure statement, saying Northwest appears to be "enriching and entrenching" its top executives through a plan to provide an undisclosed amount of stock to them. They also questioned Northwest's need for the $150 million private-equity investment that the airline has contemplated in its Chapter 11 plan.

http://biz.yahoo.com/ap/070323/north...ions.html?.v=1

jtf560

Do they really plan on not terminating the pension? I haven't paid much attention since I just assumed that that is one of the big reasons for bankrupcy for the several airlines that have gone in lately. Have they done something to limit the pensions already? I truly hope they exit with the pensions still owed, but I am really surprised that they are claiming they won't axe them.

Window_Seat

Why should the taxpayers have to pay employees the reduced pensions when the company guarantees the managements pensions. Northwest owes the employees this money. What a joke. How can companies get away with this? Have the new bankruptcy laws made it so this can't happen again?

fireman0174

The PBGC is not funded by taxpayers. It is funded by company payments, the formula and process I am not at all familiar with.

FDXLAG

Until it goes bankrupt.

jsled

Yes, but it is backed by the full faith and credit of the good ole USA.

fireman0174

Sadly, I am all to familiar with that point.

crewdawg52

Pensions are "frozen" at NWA for contract employees. What you have accrued is what you're going to get. Mine, I don't care if it goes to the PBGC, because it's frozen below the maximum that the PBGC will pay out.

cruiseclimb

It's amazing to me that some airlines dump their pensions on the taxpayers, but seem to have billions available to purchase another airline ???

Jetjok

I understand that it's a "me only" industry, but do you really not care that guys who've been at NWA for a long time, and who have earned a decent pension, will only get pennies on the dollar if it goes to the PBGC? And how about your pension? Although you've not earned the maximum that PBGC will pay, wouldn't your payout also be pennies on the dollar?