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United Airline

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EDF Case Study: United Airlines United Airlines filed the largest airline bankruptcy in history and was also one of the top 10 largest bankruptcies ever as measured by assets.
Vertical scale is logarithmic • Seemingly small movements for high-risk companies can be very substantial. • EDF credit measures are actual probabilities, not credit scores. A company with a current EDF credit measure of 2% has a 2% probability of defaulting within the next twelve months. That is, out of 100 companies with a 2% EDF credit measure, we would expect, on average, that 2 would default over the next twelve months. Also, a company with a 2% EDF credit measure is 10 times more likely to default than a firm with a 0.20% EDF credit measure. Letter ratings are for comparison purposes only--a point of reference to improve interpretation of default probabilities.

• EDF credit measures range from a low of 0.02% to a high of 20% in one basis-point increments. A basis point = 1/100 of a percentage point.

July 2001

July 2002 UAL posts a $341 million second-quarter loss.

• • •

UAL and US Airways call off merger after U.S. Justice Department says it would block merger on antitrust issues. S&P rating is BB+; Moody's rating is Ba2 EDF Credit Measure is 1.67%, equivalent to BB rating

• • Within the past month, market cap falls by almost half to $332 • million while liabilities remain at about $22.5 billion • Market leverage rises to 90% • EDF Credit Measure rises to 20.00%, the maximum
August 11, 2002 Airways • US since thefiles for bankruptcy, the largest U.S. airline to do so attacks.

November 8, 2002 UAL says it expects to lay off 2,700 flight attendants. Flight attendants union agrees to $412 million in wage cuts over 5-1/2 years two days later. Market value of assets is almost $17 billion, but that includes $23.4 billion of liabilities that set the default point to be...

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