Continental Airlines Shelf, Pass-thru Certs Rtd by S&P.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 9/17/97-- Standard & Poor's today assigned its double-`B'-plus preliminary rating to Continental Airlines Inc.'s $250 million Rule 415 shelf registration filed July 15, 1997 for pass-through certificates.

In addition, the following ratings are assigned to various tranches of pass-through certificates series 1997-3, a drawdown under that shelf registration:

-- Single-`A'-plus to class A certificates,

-- Single-`A'-minus to class B certificates, and

-- Triple-`B' to class C certificates.

The certificates, totaling $88.6 million, are secured by leveraged lease equipment notes financing nine Embraer 145 regional jet aircraft operated by Continental. The offering is believed to be the first public equipment debt financing of regional jet aircraft in the U.S. market.

Ratings are based on:

-- The corporate credit rating of Continental Airlines Inc. (double-`B'-minus/Stable/--);

-- The availability of special protections under Section 1110 of the U.S. Bankruptcy Code to owners of equipment notes (and thus, indirectly, to certificate holders); and

-- Standard & Poor's criteria for "enhanced equipment trust certificates."

The structural enhancements allow the certificates to receive higher ratings than the double-`B'-plus which would be assigned to unenhanced equipment trust certificates or pass-through certificates, and which is reflected in the preliminary rating on the shelf registration.

The Embraer 145 is a 50-seat regional jet aircraft which has been ordered by Continental Airlines and American Airlines Inc. this year, and which competes principally against Bombardier Inc.'s Canadair regional jet and similarly sized turboprop planes. Regional jets have become much more popular, particularly among North American airlines, over the past two years, and are now replacing 50-seat turboprops on many heavily traveled or long-range regional routes. The jets are more expensive than turboprops, but are faster, quieter, and much preferred by most passengers. Significantly, the 50-seat size allows the regional partners of most large U.S. airlines (fully owned subsidiaries in the case of Continental and American), rather than the large airline, to operate these planes, saving labor expense. The pilot contracts of all large U.S. airlines specify which planes must be operated by that airline's union (so-called "scope clauses"), rather than by code-sharing regional partners.

Standard & Poor's evaluated the asset value risk of these planes as being slightly worse than that of large commercial jets, but better than that of regional turboprop aircraft. Accordingly, loan-to-value ratios required to achieve specified upgrades above the double-'B'-plus equipment trust certificate rating of Continental were slightly more conservative in this offering than were the case for prior enhanced equipment trust certificates. In addition, Standard & Poor's used a somewhat more rapid depreciation schedule (3% per annum during the first 10 years and 4% per annum in years 11-15) than employed in analyzing prior transactions for purposes of assessing loan-to-values over the life of the transaction. The loan-to-values on the 1997-3 certificates, at the maximum point during the life of the rated securities, are as follows:

-- Class A certificates: 42%;

-- Class B certificates: 57% (cumulative, including class A); and

-- Class C certificates: 68% (cumulative, including classes A and B).

Like other enhanced pass-through certificates, these have access to dedicated liquidity facilities sufficient to cover 18 months of scheduled interest payments. The liquidity facilities are intended to allow continued debt service while planes are repossessed and sold, should the leases be rejected in bankruptcy.

OUTLOOK: STABLE

Standard & Poor's anticipates that these ratings would change in the event of a rating revision on Continental. Accordingly, the rating outlook on these securities also is stable. However, ratings are not expected to change with variations in the prices of jet aircraft, since the criteria assume periodic cyclical changes in aircraft values, Standard & Poor's said. -- CreditWire

CONTACT: Philip Baggaley, 212/208-1309

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