Last week Moody's Investors Service lowered its ratings on sub classes of two GE Capital aircraft lease-backed deals, which have been experiencing cashflow deterioration resulting from an industry downturn associated with Sept. 11 and the economic slowdown.

However, though a few transactions are still under review, Senior Credit Officer Nicolas Weill believes the worst of the lease restructuring, where borrowers renegotiate their lease payments based on the lower demand for air travel and the resulting overcapacity in the industry, has already taken place.

"We expect that the bulk of the restructuring is behind us, and we expect more stable cashflows from now on," Weill said. "It's six months past Sept. 11. Most of the lessees that needed to restructure already came and negotiated, so from now on the cashflows should be lower, but more stable."

The rating agency downgraded the two D classes from GE's Lease Investment Flight Trust, to Ba3' from Ba2', and a C-class and D-class from Aircraft Finance Trust, to Ba1' from Baa2' and to B2' from Ba2', respectively.

Moody's attributes the bulk of the deterioration to the restructuring and an increased level of delinquencies. In addition both deals have larger than average portions of wide-body planes, which are currently more under pressure, said Weill.

In an economic slowdown, airlines prefer to use smaller, more nimble planes that provide more destination flexibility and meet the reduced demand for air travel. Also in recent months, Moody's has taken action on Aviation Capital Group Trust and Aerco, downgrading a D class in each trust.

In December, Fitch Ratings took action on several deals, leaving LIFT's bottom class on watch. The rating agency downgraded the C class and D class notes from Pegasus Aviation Lease Securitization (PALS I), the B class through D class notes on PALS II, the C class and D class on Airplanes Pass Through Trust, and the B through D class notes on the Embarcadero Aircraft Securitization Trust. Earlier this month, the rating agency downgraded several aircraft enhanced equipment trust certificates (EETCs).

Still on both agencies' radar screens are two C classes and a D class from Pegasus Aviation Lease Securitization III, series 2001 (Moody's did not rate the sub classes on PALS I and II).

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