MOODY'S INVESTORS SERVICE PLACES CONTINENTAL AIRLINES, INC. DEBT RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE
Moody's Investors Service placed the ratings of Continental Airlines, Inc. ('Continental') on review for possible downgrade (Senior Implied Rating B2).
Ratings placed under review are as follows:
Senior Implied Rating: B2
Issuer Rating: B3
- Senior Unsecured: (P)B3
- Subordinated : (P)Caa2
- Equipment Trust Certificates Shelf : (P)Ba3
Sr. Unsecured Notes: B3
Sr. Unsecured IRB: B3
Sr. Unsecured Conv. Notes: B2
Sr. Secured Loan Certificates: Ba2
Sr. Secured Term Loans (Tranch B): B1
Preferred Stock: Ca
All ratings of Enhanced Equipment Trust Certificates except for Aaa ratings supported by monoline insurance policies
The review was prompted by the negative implications for already weak cash flow and increasingly constrained liquidity as a result of the recent unexpected deterioration in passenger demand and increased pricing competitiveness in the US airline industry. It is increasingly clear that despite reductions, operating costs have not been reduced sufficiently to accommodate the current business environment and most carriers, including Continental continue to experience significant operating losses and cash flow deficits. The deterioration in business conditions may further and meaningfully delay a recovery in debt metrics that are currently considered only marginally sufficient to support existing ratings that have anticipated a recovery in cash flow. While the review will take into consideration the impact of a war in Iraq and any related geopolitical events, its primary focus will be on the intermediate term implications on cash flow of reduced revenue generation and the ability of Continental to reduce costs. Ratings could be further affected by any significant negative impact on cash flow due to a war or act(s) of terrorism.
Moody's review will focus on the impact on Continental's cash flow of the general reduction in demand and highly competitive pricing environment. Included in the review will be an assessment of financial flexibility available to Continental as well as the degree to which the company may be able to minimize the impact of a decline in revenues through cost reductions. Short and intermediate term liquidity will be reviewed both to assess near and intermediate term demands on cash and the flexibility the company may have to delay or moderate those demands. Also reviewed will be the degree to which current liquidity may be reduced in meeting these demands in light of a shortfall in anticipated cash flow, as well as the company's access to alternative sources of cash.
Secured debt will be reviewed to determine if asset values have deteriorated sufficiently to warrant an adjustment due to increased loan to value risk. This review of collateral values could result in ratings actions for ETC and EETC transactions that are of greater or less magnitude than a change in the underlying rating, if any.
Continental Airlines, Inc. is headquartered in Houston, TX.
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