Several aircraft deals took further punishment last week, with Moody's Investors Services doling out downgrades on 23 classes from four separate trusts. The deals were placed on review several months before United Airlines made headlines with its failure to secure federal loan guarantees last week. However, the airline's misfortune does not bode well for aircraft ABS in general.

"The downgrades were more related to the performance of the underlying transactions, but this is another factor that could continue to weaken lease rates in future months," said Moody's managing director Jay Eisbruck.

Furthermore, recovery times could be pushed back if United were to liquidate, Eisbruck added.

The actions affected Embarcadero Aircraft Securitization Trust, Aircraft Lease Portfolio Securitization Trust, Aerco Limited Trust and Airplanes Pass Through Trust. In a release, the rating agency cited low lease rates for older planes and the declining value of legacy aircrafts relative to their newer-generation counterparts as the primary culprits behind the downgrades seen in these deals. The Alps transaction relies on the sale of aircraft as the primary mode of principal retirement. Higher-than-expected maintenance payments have negatively impacted the cashflow in the structure. While the current value of the aircraft should be sufficient to fully retire the Class A notes, current market conditions may make it difficult to sell the aircraft in the portfolio at better than highly distressed prices in time for the final maturity of the transaction in June 2006, Moody's analysts said.

Amid the headlines, Continental Airlines managed to price a $173.6 million enhanced equipment trust certificates (EETC) offering off its ExpressJet shelf via Citigroup Global Markets and Morgan Stanley. The deal was downsized from $299.6 million.

Meanwhile, all three pooled lease deals to price this year have been repacks (see ASR 5/24/04). Wachovia Bank made its first foray into repack territory last month with a $125.5 million offering. The single-A rated notes priced on the outer limits of expectations at 160 basis points over one-month Libor, compared with guidance in the 150 to 160 point range. The market has not seen a true new-issue pooled lease deal since International Lease Finance Corp. (ILFC) came with its $815 million Castle offering in December.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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