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Fitch Publishes New Criteria for Aircraft Enhanced Equipment Trust Certificates

Dépèche transmise le 15 septembre 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Rating Aircraft Enhanced Equipment Trust Certificates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650820

Fitch Ratings has published updated rating criteria for aircraft Enhanced Equipment Trust Certificates (EETCs). The new criteria report, 'Rating Aircraft Enhanced Equipment Trust Certificates', is available on Fitch's web site at 'www.fitchratings.com' or by clicking the link above.

The updated report replaces the report 'Surveillance Criteria for Enhanced Equipment Trust Certificates', dated Aug. 12, 2011, which has been withdrawn.

EETCs are hybrid structured-corporate debt securities that air carriers commonly use to finance aircraft equipment. Due to the bonds' hybrid characteristics, Fitch's approach incorporates elements of both the Corporates and Structured Finance rating methodologies. The methodology focuses on U.S. EETCs but could also be applied to non-U.S. structures with adjustments for differences in legal regimes. The methodology is being revised due to the transition of lead analytical coverage for EETC ratings to Corporate Finance from Structured Finance.

The primary rationale for separate EETC ratings criteria relates to the special treatment reserved for aviation assets under Section 1110 of the U.S. Bankruptcy Code and structural enhancements (including liquidity facilities and tranching) that reduce default risk for EETCs. Default probabilities and recovery expectations for EETC securities are not described completely by Fitch's general Corporates or Structured Finance methodologies.

For senior tranches, Fitch employs a 'top-down' approach that focuses primarily on structure, collateral, and legal protection with a secondary dependence on the airline Issuer Default Rating (IDR). This methodology allows for a significant differential between senior tranche ratings and the airline's general corporate obligations. The approach borrows some elements of Fitch's aircraft ABS ratings methodology

Subordinated tranches also benefit from Section 1110, but ratings are more closely linked to airline IDRs through a 'bottom-up' approach that factors in the probability of the airline's affirmation of aircraft obligations after a bankruptcy filing.

A thorough understanding of aircraft collateral pool characteristics, the level of overcollateralization (OC) in various stress scenarios, and the probability of an affirmation of aircraft obligations in an airline bankruptcy are essential parts of the Fitch EETC ratings process. The access to collateral provided by Section 1110 is valuable from a credit perspective because of the mobility of aircraft combined with a global market.

Fitch expects ratings for some currently rated EETC transactions, particularly ratings of senior classes, to be upgraded as a result of this methodology's introduction. In the case of existing subordinated tranche ratings, changes are unlikely to be significant.

If the EETC structure is used more extensively as a financing vehicle in international markets, Fitch will seek to apply this methodology, with particular analytical focus on legal protection for creditors, including in jurisdictions where the Cape Town Convention has been ratified and implemented.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Global Structured Finance Rating Criteria' (Aug. 4, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569

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