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Rating Action:

Moody's rates United's Denver Airport Bond and 2007-1 EETCs

19 Jun 2007
Moody's rates United's Denver Airport Bond and 2007-1 EETCs

Approximately $969 million of debt affected

New York, June 19, 2007 -- Moody's Investors Service assigned a Caa1 rating to approximately $275 million of City and County of Denver, Colorado Special Facilities Airport Revenue Refunding Bonds (United Air Lines Project), Series 2007A (the Denver Facility Bonds"). In a related action, Moody's also assigned ratings of Baa2 to the Class A, Ba2 to the Class B and B1 to the Class C Certificates (together, the "Certificates" ) of the United Air Lines Pass Through Certificates, Series 2007-1. Moody's affirmed all debt ratings of UAL Corporation ("UAL") and its subsidiaries, corporate family rating at B2, and the outlook remains stable.

Rating of the Denver Facility Bonds

The Caa1 rating on the Denver Facility Bonds is based on the Special Facilities and Ground Lease which obligates United to pay sufficient amounts to the City and County of Denver, Colorado to pay the principal, premium, if any and interest on the Bonds. In addition, United provides a direct, unconditional guaranty of full and prompt payment on the Denver Facility Bonds.

Ratings of the Certificates

The Certificate ratings considers the credit quality of United as obligor, the value of the aircraft pledged as security, the credit support provided by the liquidity facilities on the Class A and Class B Certificates (the Class C Certificates do not benefit from a liquidity facility), and the additional structural features of the transaction. The ratings 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 January 2019, the final maturity date. Moody's also notes that this transaction includes cross-collateralization of the aircraft securing the individual notes underlying the transaction, which enhances the potential recovery for investors in the event of default, as well as a revised waterfall and cross-default at the final maturity date of the Notes.

Structure of the United Airlines Pass Through Certificates, 2007-1 EETCs

Property of the Pass Through Trust will be Equipment Notes (the "Notes") to be issued by United, which will be secured by a perfected security interest in the aircraft being financed by this transaction. Each aircraft will be subject to a separate indenture (the "Indenture") with a separate loan trustee. It is the opinion of counsel to United that the Notes will be entitled to benefits under Section 1110 of the U.S. Bankruptcy Code. Under this provision, if United fails to pay its obligations under the Notes, the collateral trustee has the right to repossess any aircraft which have been rejected by United.

The Certificates are not obligations of, nor are they guaranteed by, United. However, the amounts payable by United under the Notes will be sufficient to pay all principal and interest on the Certificates when due. The Class C Certificates rank junior in priority to the Class B Certificates and the Class B Certificates rank junior to the Class A Certificates.

Interest on the Class A Certificates and Class B Certificates will be supported by liquidity facilities intended to pay up to three semi-annual interest payments (up to 18 months) in the event United defaults on its obligations under the Notes. The liquidity facilities do not provide for payments of principal due, and there is no liquidity facility for the Class C Certificates. The liquidity provider is Morgan Stanley Senior Funding, Inc. whose obligations will be unconditionally guaranteed by Morgan Stanley which has a Moody's short-term rating of P-1. The liquidity provider has a priority claim on proceeds from liquidation ahead of any of Certificate holders and is also the controlling party following default.

Cross Collateralization Feature

The ratings of all Certificates benefit from cross collateralization, because Moody's believes this feature potentially enhances recovery prospects. Under the cross collateralization structure, if all aircraft are sold, then surplus proceeds from the sale of any aircraft are made available to cover any shortfall due under the Notes related to the sale of any other aircraft. All surplus proceeds will be retained until maturity of the financing or the indentures are cancelled. Moody's believes expected recovery is enhanced because of: i) the number of aircraft, ii) that no single aircraft type comprises a substantial portion of the equipment pool, and iii) while there is some correlation in the value of the aircraft types in the transaction, there is sufficient diversity to produce the benefit of cross collateralization. This transaction was accorded the maximum rating benefit from the existence of cross collateralization because of the number of aircraft and the different types of aircraft.

Collateral for the 2007-1 EETC

Proceeds from the sale of the Certificates will be used to purchase Notes to finance two B767-300ER, four B777-200, four B777-200ER and three B747-400 aircraft originally delivered to United between 1998 and 2002. While there is some commonality among these aircraft as they are all long-haul widebody commercial jets, there are some differences in terms of their current and future usage which is reflected in their expected valuations. The B767-300ER is one of the most widely accepted widebody aircraft among commercial airlines, and is generally used for long-range (more than 5,000 nautical miles) flights. The B777-200, while intended for transcontinental, regional and international routes with cargo capacity similar to that of the B747, has largely been superceded by the 777-200ER. The B777-200ER has a range about 50% higher than the -200. The B747-400, which has been superceded by next-generation commercial passenger aircraft (the 747-400ER), has primary value as a freighter conversion. Moody's believes the current aircraft values are supported by particularly strong market conditions which may be nearing the peak of the demand cycle. Should a downturn in the demand occur, Moody's believes the impact on the values of the aircraft in this transaction operating in passenger configuration would be greater than for other aircraft types. First, widebody aircraft would likely have less operational flexibility than narrowbody aircraft in a softer economic environment, and their use would likely be discontinued sooner. Second, these aircraft are at or near their economic half lives. Some models have been superceded by newer, more efficient aircraft types which is likely to generate greater value volatility in an economic downturn. Finally, the cost of modification of these aircraft to cargo configuration is significant and potentially prohibitive.

Assignments:

..Issuer: Denver (City & County of) CO

....Senior Unsecured Revenue Bonds, assigned Caa1 (LGD5, 86%)

..Issuer: United Air Lines, Inc. 2007-1 Pass Through Trusts

....Class A Certificates, Assigned Baa2

....Class B Certificates, Assigned Ba2

....Class C Certificates, Assigned B1

UAL Corporation which, through its primary subsidiary United Airlines, Inc. is one of the largest airlines in the world providing scheduled passenger service throughout North America, Latin America, Europe and Asia, is headquartered in Chicago, Illinois.

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

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

No Related Data.
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