Fitch Ratings is unlikely to downgrade many collateralized debt obligations that have exposure to Delta Air Lines and Northwest Airlines in the wake of the airline companies' Chapter 11 bankruptcy filings. Fitch has 31 rated CDOs that have greater than 2% exposure to the debt of the bankrupt airlines.
The almost simultaneous filings by Northwest and Delta will not have as big an impact as many would assume as Fitch closely monitored the situation at the airlines and applied their forecasts to the ratings of these CDOs, many of which were rated pre-2004.
The CDO exposure to the airlines is mostly through unsecured corporate debt or from enhanced equipment trust certificates (EETCs). Currently, nine cash and synthetic CDOs have a corporate exposure that is higher than 2% to one or both of the airlines. Additionally, there are 22 cash flow and synthetic CDOs that have greater than 2% exposure to Delta or Northwest through EETC ownership.
Fitch had previously placed 10 EETCs with Northwest and/or Delta exposure on ratings watch negative. Fitch also downgraded issue default ratings of Northwest and Delta to D as well as lowering their senior unsecured debt to C. Last month, Fitch revealed its new recovery ratings system and assigned a recovery rating of R6, its lowest rating, to each airline (CIN, 8/15). A call to Bill Warlick, director of transportation industry research at Fitch, was unreturned.