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Rating Action:

Moody's Assigns ratings to Continental's 2010-1 EETC

17 Nov 2010

Approximately $427 Million of Debt Securities Rated

New York, November 17, 2010 -- Moody's Investors Service assigned Baa2 and Ba2 ratings, to the Class A and Class B Pass Through Certificates, Series 2010-1, respectively, of the 2010-1 Pass Through Trusts (the "Class A Certificates" and "Class B Certificates" or collectively, the "Certificates") to be issued by Continental Airlines, Inc. ("Continental"). The transaction documentation provides for the possible issuance of one additional subordinated tranche of certificates at a future date. The subordination provisions of the inter-creditor agreement provide for the payment of interest on the Preferred Pool Balance of the Class B Certificates before payments of principal on the Class A Certificates. Amounts due under the Certificates will, in any event, be subordinated to any amounts due on either of the Class A or Class B Liquidity facilities, each of which provides for three consecutive semi-annual interest payments due the respective Certificate holders.

The Class A Equipment Notes and Class B Equipment Notes (the "Notes") issued by Continental and acquired with the proceeds of the Certificates will be the primary assets of the Pass Through Trusts. Part of the Certificates' proceeds will fund a portion of the upcoming maturities in March and June 2011 of certain tranches of Continental's outstanding Enhanced Equipment Trust Certificates ("EETC's"), Series 1999-2 and 2001-1, respectively. Twelve owned aircraft including from these EETCs will secure the equipment notes for 12 of the 18 aircraft that will comprise the collateral pool of the Certificates. Six new deliveries from Boeing scheduled for between December 2010 and April 2011 will round out the aircraft collateral that will secure the respective indentures of the Notes.

Rating Rationale

The ratings of the Certificates consider the credit quality of Continental (Corporate Family Rating of B2, stable outlook) as obligor under the Notes, Moody's opinion of the collateral protection of the Notes, the credit support provided by the Liquidity Facilities, and certain structural characteristics of the Notes such as the cross-collateralization and cross-default provisions and the protections of Section 1110 of Title 11 of the United States Code (the "Code"). The assigned ratings of Baa2 and Ba2 on the Class A and Class B tranches, respectively, reflect Moody's opinion of the ability of the Pass Through Trustees to make timely payment of interest and the ultimate payment of principal at a date no later than July 12, 2022 for the Class A Certificates and July 12, 2020 for the Class B Certificates, each the final maturity dates. "Moody's believes that the cross-default feature increases the likelihood of affirmation by Continental of its obligations under the Equipment Notes as each of the aircraft types in this transaction are core to Continental's mainline operations and fleet strategy," said Moody's Analyst Jonathan Root. Additionally, the cross-collateralization of the aircraft securing each note underlying the transaction enhances the potential recovery for investors in the event of a default by the Pass Through Trusts of their respective Certificate obligations or of the rejection by Continental of its obligations under the Notes' indentures in the event of a bankruptcy event and pursuant to the provisions of the Code.

Any combination of future changes in the underlying credit quality or ratings of Continental, material unexpected changes in the value of the aircraft pledged as collateral, and/or changes in the status or terms of the liquidity facilities or the credit quality of the liquidity provider could cause Moody's' to change its ratings of the Certificates.

General Structure of the Series 2010-1 EETC's

The proceeds of the Certificates will initially be held in escrow and deposited with the Depositary, JPMorgan Chase Bank, N.A. (short-term rating of P-1), until the issuance of each of the equipment notes. The interest on these funds will be sufficient to pay accrued interest on the outstanding Certificates during the Deposit Period which expires on or before July 31, 2011.

The collateral pool consists of the following aircraft:

(i) two 1999, one 2001, one 2010 and two 2011 vintage B737-800s;

(ii) four 2001 vintage B737-900s;

(iii) two 2010 and one 2011 vintage B737-900ERs; and

(iv) five 2002 vintage B767-400ERs

The Certificates issued to finance the aircraft are not obligations of, nor are they guaranteed by, Continental. However, the amounts payable by Continental under the Notes will be sufficient to pay in full all principal and interest on the Certificates when due. The Notes will be secured by a perfected security interest in the aircraft. It is the opinion of counsel to Continental that the Notes will be entitled to benefits under Section 1110 of the U.S. Bankruptcy Code. Under Section 1110 of the U.S. Bankruptcy Code, if Continental fails to pay its obligations under the Notes, the collateral trustee has the right to repossess any aircraft which have been rejected by Continental. Scheduled interest payments on the Certificates will be supported by the A tranche and B tranche liquidity facilities sized to pay up to three respective consecutive semi-annual interest payments in the event Continental defaults on its obligations under the Notes. The liquidity facilities do not provide for payments of principal due, nor interest on the Certificate proceeds held in escrow during the Delivery Period. The provider of each of the liquidity facilities is Landesbank Hessen-Thuringen Girozentrale (Moody's short term rating of P-1). The liquidity provider has a priority claim on proceeds from liquidation of the Equipment Notes and other Trust collateral ahead of any of the holders of the Certificates and is also the controlling party following a default.

Cross-Collateralization

The ratings of the 2010-1 Certificates benefit from the cross-collateralization of the Notes, a feature which Moody's believes can enhance recovery in the event of a default. The structure provides that, in the event any or all aircraft are sold after a default on one or more of the Notes, any surplus proceeds are made available to cover shortfalls due under the Notes related to the sale of any other aircraft. Importantly, all such surplus proceeds are retained until maturity of the Equipment Notes financing or the indentures are cancelled.

Moody's considers the number of aircraft and the number of different aircraft models that comprise the collateral pool when assessing the amount of LTV benefit of a cross-collateralized EETC financing. At eighteen aircraft, the size of the collateral pool of this transaction is modest, which results in Moody's applying a modest reduction to its assessment of the peak LTV over the life of the Certificates. We believe that the aircraft models in this transaction are core to Continental's current standalone network, and will remain so as part of the expanded network of United Continental Holdings, Inc. (B2 Corporate Family rating, stable outlook). The inclusion of the six new aircraft and that each of the models are integral to Continental's short- and long-haul routes support the likelihood of affirmation by Continental of its obligations under the Notes under a reorganization scenario, thus minimizing the probability of the cross-collateralization benefit being called upon by creditors over the life of the transaction.

The last rating action was on September 29, 2010 when Moody's affirmed the B2 corporate family rating and changed the outlook to stable from negative.

The principal methodology used in this rating was Global Passenger Airlines published in March 2009.

Assignments:

..Issuer: Continental Airlines, Inc.

....Senior Secured Enhanced Equipment Trust, Class A, Assigned Baa2

....Senior Secured Enhanced Equipment Trust, Class B, Assigned Ba2

Continental Airlines, Inc. based in Houston Texas, is the world's fifth largest passenger airline as measured by the number of scheduled miles flown by revenue passengers in 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Jonathan Root
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's Assigns ratings to Continental's 2010-1 EETC
No Related Data.
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