Fitch Downgrades Embarcadero Aircraft Securitization Trust.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 28, 2003

Fitch Ratings has taken the following rating actions for Embarcadero Aircraft Securitization (EAST) as outlined below:

-- Class A-1 notes are downgraded to 'BBB-' from 'A-';

-- Class A-2 notes are downgraded




				

				
				 
				


 to 'BBB-' from 'A-';

-- Class B notes are downgraded to 'CC' from 'BB-';

-- Class C notes are downgraded to 'CCC' from 'B';

-- Class D notes are downgraded to 'D' from 'CC';

-- All ratings are removed from Rating Watch Negative.

EAST originally issued $792.6 million of notes in August 2000 and now has $757 million outstanding. Currently, only the class A-2, class B, and class C notes are scheduled to be amortizing. EAST is a Delaware business trust formed to conduct limited activities, including the buying, owning, leasing and selling of commercial jet aircraft. EAST's current portfolio is comprised of 34 aircraft. Primary servicing is being performed by GATX Capital (a division of GATX Financial Corporation) while the administrative agent role is being performed by Phoenix American Financial Services, Inc.

The ability of EAST and many aircraft lessors to generate lease cash flows has been impaired by the depressed air travel markets, resulting from the events of September 11th and the downturn in the global economy. EAST's lease cash flows have been particularly effected by bankruptcies of lessees, the need of financially weak lessees to either return aircraft early or seek lease restructuring, and depressed lease rates. EAST's cash flows are also being effected by higher than originally expected levels of expenses.

Although EAST's cash flows have rebounded some recently, minimum required principal to the class A-2, class B and class C notes is not being paid and liquidity is being drawn to pay class B and class C interest requirements. The class B notes have about 1.5 months of liquidity while the class C notes have about 24 months. The class D notes have exhausted their liquidity reserve and have accrued about $4 million of unpaid interest.

In the next 24 months Fitch expects some additional deterioration in cash flows as lease renewals in 2003 and in 2004 (about 40% of appraised value) should continue to be subject to weak lease rates. Unfortunately, under these conditions it is highly likely that EAST will continue: 1) to not fully pay minimum principal amounts and 2) draw on its reserves to pay interest for the class C notes and accrue interest on the class B and class D notes.