Moody’s Investor Service upgraded $2.2 billion in debt held by United Airlines’ parent UAL Corp., and said it may raise the rating again after United closes its merger with Continental Airlines.
“The upgrade of the ratings recognized the strengthening of liquidity and credit metrics that has occurred since the beginning of 2010,” said Moody’s analyst Jonathan Root of the decision to rate United’s debt to B3 from Caa1.
Moody’s also affirmed its B2 debt rating of Continental and assigned a Ba2 rating to a $750 million debt offering announced by the Houston-based carrier Monday.
Both Chicago-based United and Continental have speculative-grade ratings, a reflection of the highly volatile airline industry.
But United’s improved performance over the past year has greatly improved its creditworthiness and put to rest fears of potential default on its debt. On July 20, United posted second-quarter net income of $273 million, or $1.29 per share, its first quarterly profit in three years.
United generated $801 million of free cash flow during the quarter and held $5.2 billion in cash by the end of the reporting period. That’s double the $2. 6 billion that United held a year earlier, although the nation’s third-largest carrier leveraged almost all of its unencumbered assets to boost liquidity.
Moody said it would consider upgrading United following the mega-deal’s close later this year if post-merger labor costs and terms of new union contracts “are competitive” with industry peers and if antitrust regulators don’t require United and Continental to divest a significant number of routes or hubs in the United States.
As of mid-day Monday, United Airlines shares were up 2.78 percent to $24.40.
jjohnsson@tribune.com
