Fitch Lwrs Houston Airport Sys Special Facils Revs Matching CAL's Sr Unsec Rtg 'CCC+'

[Ny Fitch Ratings/Houston via BizWire]

Fitch Lwrs Houston Airport Sys Special Facils Revs Matching CAL's Sr Unsec Rtg 'CCC+'; Stable Outlk
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SAN FRANCISCO--(BUSINESS WIRE)--April 29, 2004--Fitch Ratings
downgrades the rating on $323.5 million City of Houston, Texas,
airport system special facilities revenue bonds (Continental Airlines,
Inc. Terminal E Project) series 2001 to 'CCC+' from 'B-'. A Fitch
'CCC' category rating indicates that the potential for default is a
real possibility. Special facilities rent, paid by Continental
Airlines Inc. (CAL) secures the bonds and this transaction includes no
access to liquidity or structural enhancements to avoid default if CAL
fails to provide timely debt service payments.
On Oct. 30, 2002, Fitch lowered the debt rating on CAL's senior
unsecured debt obligations to 'CCC+' from 'B-', yet maintained the
'B-' rating on the special facilities bonds because of various
terminal demand related issues. Due to the subsequent events in the
aviation industry including: continuing airline bankruptcies,
litigation, and the continued weak demand for air travel, the
one-notch distinction is no longer warranted. Furthermore, as
uncertainly remains prevalent in the aviation industry, Fitch
continues to enhance its rating methodology on special facilities debt
offerings.
The series 2001 special facilities bonds were issued to finance
construction and development of the Terminal E project, which CAL
intends to use as its primary international terminal at HAS's George
Bush Intercontinental Airport (IAH) and as a gateway to Latin
American. Phase-one of the project is complete and twenty-three gates
are operational. Current terminal E utilization is in line with the
projections and greater than overall airport and industry averages.
Renovation in terminal C has caused some shift in traffic to terminal
E, but CAL is incentivized to maximize the terminal E utilization,
because they retain all concession profits and are entirely
responsible for debt service. Both the City of Houston and CAL have
certified substantial completion of phase-one. Therefore, CAL's
unsecured guarantee for phase-one is effective.
Key credit factors include the lack of available landside space at
IAH, solid local passenger demand, the airport's geographical location
serving to facilitate strong connecting and international traffic to
Mexico. Also, CAL's IAH route structure is quite profitable and lacks
significant competition. Lastly, the lease with the city provides
airport management with the ability to re-let Terminal E post-default
and direct all revenues obtained to the bondholders.
Credit concerns include the viability of the lessee, CAL, whose
senior unsecured debt is rated 'CCC+' deeply non-investment grade.
CAL's rating reflects the ongoing concerns regarding the company's
ability to deliver substantial improvements in its credit profile in
the face of a heavy debt and lease burden, significant cash
obligations related to upcoming debt maturities, and a relatively
constrained liquidity position (For more information regarding CAL's
rating, see Fitch research 'Fitch Affirms Continental Airlines'
Ratings, Outlook Stable' dated; Feb. 13, 2004). With the series 2001
bonds, the potential for timing issues exists, as principal and
interest payments are due to the trustee the day distributions are
made to bondholders and the transaction does not include a debt
service revenue account.