Fitch Affirms Ratings on Multiple United Airlines EETCs

Fitch Ratings has affirmed the ratings for multiple United Airlines EETCs concurrent with a review and affirmation of United Airlines’ Issuer Default Rating (IDR). The rating affirmations cover United Airlines Pass Through Trust Series 2014-1 and 2013-1, Continental Airlines Series 2012-2 and 2012-3. A full list of rating actions follows at the end of this release.

Senior EETC tranche ratings are primarily based on a top down analysis of the level of overcollateralization featured in the transaction. The ratings also incorporate the structural benefits of section 1110 of the bankruptcy code and the presence of an 18-month liquidity facility.

Fitch’s stress case utilizes a top-down approach assuming a 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, various stresses to the value of the collateral.

Collateral pools for each of the above transactions are similar, consisting of newer vintage 737-900ERs, 787-8s, and in the case of UAL 2014-1, 787-9s and Embraer 175s. Fitch applies a 30% ‘A’ level stress rate to the 737-900ERs and the Embraer 175s, reflecting Fitch’s view that those aircraft represent Tier 1/2 collateral. The 787s (both the -8 and -9 variant) receive a 20% stress rate, as Fitch views those aircraft as high quality Tier 1 assets.

For each series of class A certificates mentioned above, Fitch’s stress scenario produces a maximum LTV in the low to mid 90% range, reflecting full recovery for the certificate holders. Importantly, recovery is expected prior to the expiration of the 18 month liquidity facility thus avoiding a potential event of default.

Subordinated tranche ratings are linked to United’s IDR and are adjusted based on three primary factors; 1) likelihood of affirmation, 2) presence of a liquidity facility, and 3) recovery prospects.

The 2014-1 and 2013-1 B tranche ratings reflect high affirmation factors (+3 notches), as Fitch views the collateral pools as being strategically important to United. An additional notch is assigned for the presence of a liquidity facility. The 2012-2 B tranche is adjusted by a further one notch as it exhibits superior recovery prospects. The 2012-2 B tranche was structured with a lower initial LTV (better recovery prospects) when compared to either the 2013-1 or 2014-1 B tranches.

The 2012-2 C tranche rating of ‘BB-’ reflects a two notch uplift from United’s IDR, reflecting a high affirmation factor partially offset by weaker recovery prospects reflecting the C tranche’s subordinate position beneath both the A and B tranches.

Fitch has affirmed the ratings on various United Enhanced Equipment Trust Certificates as follows:

United Airlines Pass Through Trust Series 2014-1

—Class A Certificates at ‘A’

—Class B Certificates at ‘BB+’

United Airlines Pass Through Trust Series 2013-1

—Class A Certificates at ‘A’

—Class B Certificates at ‘BB+’

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’

Additional information is available at ‘www.fitchratings.com’

Applicable Criteria and Related Research:

—‘Corporate Rating Methodology’ (Aug. 5, 2013);

—‘Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers’ (Nov. 19, 2013);

—‘Rating Aircraft Enhanced Equipment Trust Certificates’ (Sept. 12, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836

Rating Aircraft Enhanced Equipment Trust Certificates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717763