S&P: United ruling a setback

Standard & Poor's said a federal district court on March 18 granted United Air Lines Inc.'s (rated D) motion to dismiss an appeal of a temporary restraining order preventing repossession of aircraft operated by United.

"The decision represents a setback for bondholders and could have wider effects on aircraft financing in the U.S.," said S&P credit analyst Philip Baggaley.

The bankruptcy court presiding over United's reorganization had issued the order on Nov. 26, 2004, to prevent trustees on behalf of various aircraft creditors from repossessing 14 aircraft. The trustees appealed the bankruptcy court's action to the related district court.

S&P said the district court granted United's motion to dismiss the appeal on the narrow procedural grounds that the temporary restraining order was not "appealable as a matter of right" because it was not a final order of the bankruptcy court and the trustees' had agreed to its continuation pending further order of the bankruptcy court.

S&P stated in an earlier comment that the temporary restraining order, if not overturned, could weaken protections available to creditors under Section 1110, and cited that as one of several concerns in a Feb. 24 listing of certain aircraft-backed debt on CreditWatch with negative implications.

The latest ruling by the district court, while it does not decide either the antitrust or temporary restraining order disputes, increases the likelihood that holders of United equipment trust certificates and enhanced equipment trust certificates will eventually reach a negotiated settlement with the airline, according to S&P.

S&P said it will consider the risks implied by the range of potential outcomes in the United case as one input in resolving the CreditWatch review.

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