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Rating Action:

Moody's upgrades United Continental Holdings; CFR to Ba2, stable outlook

23 Jan 2017

New York, January 23, 2017 -- Moody's Investors Service upgraded its ratings of United Continental Holdings, Inc. and its subsidiaries, including the Corporate Family Rating to Ba2 from Ba3, Senior Secured to Baa3 (LGD2) from Ba1 (LGD2), Senior Unsecured to Ba3 (LGD5) from B1 (LGD5) and most of the Enhanced Equipment Trust Certificate ("EETC") ratings. The Speculative Grade Liquidity rating of SGL-1 has also been affirmed. The rating outlook is stable.

RATINGS RATIONALE

"The upgrade to Ba2 reflects United's leading position in the global passenger airline industry, credit metrics that have cushion to absorb the effects of expected pressure on operating earnings and cash flow in 2017 from higher costs for labor and fuel, and it's very good liquidity," said Moody's Senior Credit Officer, Jonathan Root. "Moody's also believes that United will maintain a disciplined financial policy, refraining from repurchasing shares in periods when free cash flow wanes and carefully evaluating its capital deployment to limit increases in financial leverage," continued Root. Moody's projects negative free cash flow in 2017 because of the company's guide to about $4.4 billion of capital expenditures in 2017, up about $1 billion over 2016, accompanied by labor and fuel cost pressures. However, Moody's expects capital expenditures to reduce in 2018 and the EBITDA margin will remain above 20% in 2017, a level supportive of the Ba2 rating.

Moody's anticipates that the average cost of a barrel of Brent will remain below $60 through 2018, which will limit excessive fuel cost pressures; although the swoon in Brent prices in the first half of 2016 will result in an about 20% increase in the cost of fuel for the industry, including United, in 2017. Accompanying this trend is lower capacity growth by most of the US airlines across their domestic and international networks. Moody's anticipates that United will take the necessary actions to limit outsized pressure on earnings and operating cash flow should revenues fall short of its plans. These include a continuing focus on controlling non-fuel unit costs to support operating cash flow.

The stable outlook anticipates that liquidity will remain robust and credit metrics will be at levels supportive of the Ba2 rating, albeit with less cushion compared to the prior 18 months. The outlook also assumes that United and its peers will continue to emphasize earning acceptable returns on invested capital, rather than strategies focused on market share. This will dictate trimming capacity when fares do not cover costs and raising fares as fuel costs rise. Modestly slower planned capacity growth by Spirit Airlines (unrated) in 2017 and higher fuel prices should help reduce the downwards pressure on unit revenue growth (passenger revenue per available seat mile (PRASM)) for the industry.

The SGL-1 rating reflects very good liquidity, supported by an expectation of at least $4 billion of cash, the $1.35 billion revolver which will remain undrawn and a large pool of unencumbered assets that would likely allow the company to raise in excess of $4 billion of new debt, if needed. While Moody's anticipates negative free cash flow in 2017 because of stepped up capital investment, it anticipates that capital investment will decline beyond 2017 as the new management team plans and executes its network and fleet strategy.

Twenty-two EETC tranches were upgraded by one notch, in step with the upgrade of the Corporate Family rating. Ratings on eleven tranches were affirmed, including the Aa3 ratings assigned to the Class AA tranches of the company's three most recent EETCs. The other four tranches that were affirmed are from transactions that are not cross-defaulted or cross-collateralized and are secured by some of the older aircraft in the company's fleet. The rating actions on the EETCs consider our estimates of loans-to-value (LTVs), our opinions of the probability that United would affirm a transaction under a reorganization scenario based on the aircraft type and age, the relative coupon and the relative attractiveness or demand for particular models and or vintages under a reorganization scenario. The EETC rating actions also consider that the weight of the corporate credit and of the collateral attributes shifts over Moody's corporate rating scale; generally, the higher the corporate rating, the less weight in the collateral.

An upgrade could occur if United sustains stronger credit metrics through periods of weaker industry operating earnings. For example, Debt to EBITDA that approaches 3x and EBIT to Interest that approaches 4x. Sustaining funded debt below $10 billion from the current of about $11.7 billion would likely be needed to achieve these metrics when Brent is above $50 per barrel. Balancing reduction of funded debt against share repurchases and sustaining at least $4 billion of cash and at least $1.75 billion of committed, long-term revolving credit facilities will be an important consideration in any potential upgrade. The ratings could be downgraded if United is unable to maintain its EBITDA margin above 15% or if unrestricted cash and short-term investments fall below $3 billion or aggregate liquidity (cash and availability on revolving credit facilities) is sustained below $4.5 billion. Recurring negative annual free cash flow, Debt to EBITDA approaching 4.5 times or EBIT to Interest that approaches 2.5 times could also lead to a downgrade.

Changes in UAL's Corporate Family rating, in Moody's opinion of the importance of particular aircraft models to its network, or in Moody's estimates of aircraft market values which will affect estimates of loan-to-value can result in changes to EETC ratings.

The methodologies used in these ratings were Global Passenger Airlines published in May 2012, and Enhanced Equipment Trust and Equipment Trust Certificates published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

United Continental Holdings, Inc. is the holding company for United Airlines, Inc. ("United"). United and United Express operate an average of 4,500 flights a day to 339 airports across five continents. The company reported $36.5 billion of revenue for 2016.

Upgrades:

..Issuer: CLEVELAND (CITY OF) OH

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

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

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

..Issuer: Harris County Industrial Dev Corp, TX

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

..Issuer: Hawaii Department of Transportation

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

..Issuer: Houston (City of) TX

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

..Issuer: New Jersey Economic Development Authority

....Backed Senior Unsecured Revenue Bonds, Upgraded to Ba3 (LGD5) from B1 (LGD5)

..Issuer: United Airlines, Inc.

....Backed Senior Secured Bank Credit Facility, Upgraded to Baa3 (LGD2) from Ba1 (LGD2)

....Senior Secured Enhanced Equipment Trust Apr 11, 2024, Upgraded to A2 from A3

....Senior Secured Enhanced Equipment Trust Apr 29, 2026, Upgraded to A2 from A3

....Senior Secured Enhanced Equipment Trust Jan 7, 2030, Upgraded to A1 from A2

....Senior Secured Enhanced Equipment Trust Jul 12, 2022, Upgraded to A2 from A3

....Senior Secured Enhanced Equipment Trust Oct 7, 2028, Upgraded to A1 from A2

....Senior Secured Enhanced Equipment Trust Sep 15, 2017, Upgraded to A3 from Baa1

....Senior Secured Enhanced Equipment Trust Jan 2, 2018, Upgraded to A3 from Baa1

....Senior Secured Enhanced Equipment Trust Jun 15, 2021, Upgraded to A3 from Baa1

....Senior Secured Enhanced Equipment Trust Apr 29, 2018, Upgraded to Ba1 from Ba2

....Senior Secured Enhanced Equipment Trust Oct 2, 2019, Upgraded to Ba1 from Ba2

....Senior Secured Enhanced Equipment Trust Apr 1, 2021, Upgraded to Ba1 from Ba2

....Senior Secured Enhanced Equipment Trust May 1, 2022, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust Sep 15, 2018, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust Apr 11, 2020, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust Jul 12, 2020, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust Oct 29, 2020, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust May 10, 2017, Upgraded to Baa2 from Baa3

....Senior Secured Enhanced Equipment Trust Oct 2, 2022, Upgraded to Baa1 from Baa2

....Senior Secured Equipment Trust Jul 2, 2018, Upgraded to Ba1 from Ba2

....Senior Secured Equipment Trust Apr 19, 2022, Upgraded to Ba1 from Ba2

....Senior Secured Equipment Trust Sep 1, 2019, Upgraded to Ba1 from Ba2

....Senior Secured Pass-Through Jun 1, 2029, Upgraded to A1 from A2

..Issuer: United Continental Holdings, Inc.

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Backed Senior Unsecured Regular Bond/Debentures, Upgraded to Ba3 (LGD5) from B1 (LGD5)

Assignments:

..Issuer: United Continental Holdings, Inc.

....Backed Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD5)

Outlook Actions:

..Issuer: United Airlines, Inc.

....Outlook, Changed To Stable From Positive

..Issuer: United Continental Holdings, Inc.

....Outlook, Changed To Stable From Positive

Affirmations:

..Issuer: United Air Lines, Inc.

....Backed Senior Secured Pass-Through Jul 2, 2022, Affirmed Ba1

....Backed Senior Secured Pass-Through Jul 2, 2019, Affirmed Ba3

..Issuer: United Airlines, Inc.

....Senior Secured Enhanced Equipment Trust Nov 10, 2019, Affirmed A3

....Senior Secured Enhanced Equipment Trust Jan 7, 2030, Affirmed Aa3

....Senior Secured Enhanced Equipment Trust Oct 7, 2028, Affirmed Aa3

....Senior Secured Enhanced Equipment Trust May 1, 2022, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Aug 2, 2020, Affirmed Baa2

....Senior Secured Enhanced Equipment Trust Sep 15, 2021, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust May 1, 2018, Affirmed Baa1

....Senior Secured Equipment Trust Apr 19, 2022, Affirmed A3

....Senior Secured Pass-Through Jun 1, 2029, Affirmed Aa3

..Issuer: United Continental Holdings, Inc.

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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