Continental Prices $800M in 144-A Private Placement

Continental Prices $800 Million in Notes

Continental Airlines sold $800 million in new notes yesterday. The 144a private placement was increased from an originally planned $750 million.

The five-year notes priced at 98.938 with a coupon of 6.75 percent. The notes are rated BB- by Standard & Poor’s.

“We base the ‘BB-‘ rating and ‘1’ recovery rating on the ‘B’ corporate credit rating on the company, as well as our expectation of very high (90% to 100%) recovery in a payment default scenario,” said Standard & Poor’s credit analyst Philip Baggaley. “International route rights of Continental and related slots and gates, the stock of subsidiary Air Micronesia Inc. (AMI), and indirect subsidiary Continental Micronesia Inc. (CMI) will collateralize the notes,” he continued.

AMI and CMI will guarantee the notes, whose guarantees are secured by CMI’s international route rights and certain other assets. The various international routes that will secure the notes consist of Continental’s routes between the U.S. and Japan, those between the U.S. and China and Hong Kong, those between the U.S. and U.K., and those of CMI. CMI operates routes in the central Pacific region from a hub at Guam, serving Pacific islands, Japan, and certain other Pacific rim destinations. Its main business is carrying Japanese tourists to Guam and other islands of Micronesia, which has been a profitable and fairly stable source of revenues.

“In our simulated default scenario, we estimate 95% coverage of the secured notes, potential add-on notes, six months of interest expense, and certain other priority claims on the collateral,” S&P noted.

The deal was led by Citi, Goldman Sachs and UBS.

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