NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for several series of enhanced equipment trust certificates issued by United Airlines. Fitch currently rates United 'BB-'/Outlook Positive. The following ratings have been affirmed:
United Airlines Pass Through Trust Series 2016-1
--Class AA Certificates at 'AA'
--Class A Certificates at 'A'.
United Airlines Pass Through Trust Series 2014-2
--Class A Certificates at 'A'
--Class B Certificates at 'BBB-'.
United Airlines Pass Through Trust Series 2014-1
--Class A Certificates at 'A'
--Class B Certificates at 'BBB-'.
United Airlines Pass Through Trust Series 2013-1
--Class A Certificates at 'A'
--Class B Certificates at 'BBB-'.
Continental Airlines Pass Through Trust Series 2012-2
--Class A Certificates at 'A'
--Class B Certificates at 'BBB-'.
Continental Airlines Pass Through Trust Series 2012-3
--Class C Certificates at 'BB'.
KEY RATING DRIVERS
Fitch's senior EETC tranche ratings are primarily based on a top-down analysis of the level of overcollateralization (OC) featured in the transaction. Fitch's stress analysis uses an approach assuming the rejection of the entire pool of aircraft in a severe global aviation downturn. The stress scenario incorporates a full draw on the liquidity facility, an assumed 5% repossession/remarketing cost, and various stresses to the value of the collateral. Fitch also utilizes its top-down approach for the UAL 2016-1 'A' tranche, which is the subordinated tranche in that transaction. The ratings approach in that transaction is supported by levels of OC that are similar to other, previously issued senior tranches.
Based on updated appraisal information incorporated into Fitch's analysis, the level of OC in each of these transactions has weakened slightly since the ratings were last reviewed, with the exception of UAL 2016-1, which was just launched in May of this year. Weaker levels of collateral coverage are a result of aircraft values that have depreciated slightly faster than the levels that were incorporated into Fitch's previous analysis. Faster rates of depreciation were broad-based, including all of the aircraft types that are featured in these transactions, namely the 737-900ER, the ERJ-175, and the 787-8 and 787-9. Despite slightly weaker loan-to-values (LTVs), all of the transactions continued to pass Fitch's stress tests that correspond to their current rating levels.
The B and C tranche ratings are notched from the 'BB-' IDR of the underlying airline. The 'BBB-' rating for the B tranches reflects a high affirmation factor (+2 notches) and the presence of an 18-month liquidity facility (+1 notch). The 'BB' rating for the 2012-3 C tranche reflects a high affirmation factor (+2 notches) partially offset by recovery expectations (-1 notch).
KEY ASSUMPTIONS
Ratings for these transactions are driven by a harsh downside scenario in which United declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values.
RATING SENSITIVITIES
Negative rating actions for the senior tranches could be driven by unexpected declines in collateral values. For the 737-900ERs in these transactions, values could be affected by the entrance of the 737-9 MAX, or by an unexpected bankruptcy by one of its major operators. Likewise the Embraer 175s could also be affected by the entrance of the 175 E-2. Concerns for the 787 values largely revolve around the potential for production issues on a scale above and beyond what has already been experienced.
Subordinated tranche ratings are based off of the underlying airline IDR. As such, Fitch would likely upgrade the B tranches to 'BBB' if United's IDR were upgraded to 'BB'. Fitch's criteria allow for greater ratings uplift for lower rated carriers, therefore if United were downgraded to 'B+', the subordinated tranche ratings would likely not change.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/site/re/869362
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Rating Aircraft Enhanced Equipment Trust Certificates (pub. 12 May 2016)
https://www.fitchratings.com/site/re/881329
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011847
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011847
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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