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Not good news for ACA

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May 4, 2002
Reuters Company News Moody's may cut Atlantic Coast Airlines Hldgs

(Press release provided by Moody's Investors Service)

Approximately $100 Million of Debt Securities Affected.

NEW YORK, Aug 15 - Moody's Investors Service placed the debt ratings of Atlantic Coast Airlines Holdings, Inc. (NasdaqNM:ACAI - News; Atlantic Coast), Senior Implied Rating, B1, under review for possible downgrade. The action was prompted by the rapidly deteriorating financial condition of United Airlines, Inc. ('United'), Atlantic Coast's primary business partner, and the potential risks for Atlantic Coast from decisions that United could make as part of its restructuring program. With over 80% of its fee for service flying under contract with United, Atlantic Coast's revenues are vulnerable to changes in United's ability and willingness to pay for those services. United has stated that it will be negotiating concessions from its primary stake holders and Moody's anticipates that Atlantic Coast could be among that group. The review will assess the financial impact of any concessions accepted by Atlantic Coast or effectively mandated should United undergo a judicial restructuring. Changes could be as simple as a reduction of the current fee schedule or as complex as major changes in the degree and breadth of the flying contracted to Atlantic Coast. Moody's will review the potential for a negative impact on revenue and the ability of Atlantic Coast to quickly respond with cost reductions. The review will include an assessment of the potential for contractual arrangements between United and Atlantic Coast that could assist the company in quickly reducing or to defray costs. Moody's acknowledges the importance of regional jets in United's current route structure and fleet plan and the likelihood for continued use of the aircraft type. However, the review also considers that as a result of United's financial circumstances, significant uncertainty exists in the near term regarding potential changes in the fee structure, contracted volume and the specific aircraft to be used. Moody's will also review the status of the aircraft collateralizing the company's EETC including aircraft value, the likelihood of their continued use by Atlantic Coast and any contractual arrangements between United and Atlantic Coast that may provide support to debt holders. Ratings on review for possible downgrade are: Senior Implied Rating B1 Issuer Rating B1 US$57.7 million Series 1997-A, Class A Pass Through-Certificates A2 US$24.7 million Series 1997-A, Class B Pass Through-Certificates Baa2 US$23.3 million Series 1997-A, Class C Pass-Through Certificates Ba1 Atlantic Coast, located in Dulles, VA, operates as United Express in the Eastern and Midwestern United States, and as Delta Connection in the Eastern U.S.
Considering the share price has been flat since that announcement I would guess the market has already taken this into consideration. Also, what are the options for UA if they go Ch 11. Reduce our flying and increase theirs - doubtful.
Well, I don't think the UAX will be reduced much...it may actually increase in the near future...this is not the way I'd like for us to expand...it's definately bitter-sweet. I wouldn't read to much into this press release...it's just typical Wall Street reactionary short term thinking. ACA is solid.

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