October 24, 2017 / 3:29 AM / 10 months ago

Fitch Assigns Final 'A+' to CDB Leasing's MTN Programme and Notes

(The following statement was released by the rating agency) TAIPEI, October 23 (Fitch) Fitch Ratings has assigned a final rating of 'A+' to CDBL Funding 1's USD3 billion medium-term note (MTN) programme. Fitch has also assigned final ratings of 'A+' to the company's USD400 million 3% senior unsecured notes due 2023 and USD400 million 3.5% senior unsecured notes due 2027 to be issued under the MTN programme. The notes will be guaranteed by CDB Aviation Lease Finance Designated Activity Company (CDBALF) with a keepwell deed and deed of asset purchase undertaking provided by CDB Leasing Co., Ltd. (CDB Leasing, A+/Stable). The programme and notes will be listed on the Hong Kong Stock Exchange and the proceeds will be used for new capital expenditure, including aircraft acquisitions and orders, re-financing of existing debt obligations, working capital and other general corporate purposes relating to CDB Leasing's aircraft leasing business segment. The final ratings on the programme and notes are in line with the expected ratings assigned on 11 October 2017 and follow the receipt of documents conforming to information previously received. KEY RATING DRIVERS The final ratings of 'A+' on the MTN programme and notes issued under the programme are underpinned by our assessment of CDB Leasing's credit profile, as well as our expectation of an extremely high level of support from CDB Leasing and CDBALF, with the benefit of a guarantee from CDBALF and the keepwell structure and asset repurchase agreement provided by CDB Leasing. The notes will represent CDBALF's direct, unconditional, unsubordinated and unsecured obligations and rank at least pari passu with all its other current and future direct, unsecured, unguaranteed and unsubordinated debt. The programme's rating reflects the ratings that are expected to be assigned to senior notes issued under the programme. The ratings of CDB Leasing reflect our view of an extremely high level of support from its parent China Development Bank Corporation (CDB, A+/Stable). This is based on our assessment that CDB Leasing is a core subsidiary of CDB as it is of strategic importance to the bank and has close linkage to the bank. In Fitch's opinion, a default by CDB Leasing would create enormous reputational risk for CDB. For further information on the drivers and sensitivities of CDB Leasing's IDRs, refer to <a href="https://www.fitchratings.com/site/pr/1019408">Fitch Affirms the Ratings of Chinese Banks' Leasing Subsidiaries, dated 23 February 2017. CDBALF, which is domiciled in Ireland, serves as a management platform for the entire aircraft portfolio of CDB Leasing group. The aircraft portfolio is owned by multiple entities established primarily in Ireland and China, which enter into aircraft leasing agreements with airline customers. Aircraft leasing accounts for about one-third of CDB Leasing's total assets. CDBALF is highly integrated with CDB Leasing and we expect it to receive an extremely high level of support from its parent. In our opinion, a default by CDBALF would create enormous reputational risk for CDB Leasing and its ultimate parent, CDB, given that counterparties generally see CDBALF as an integral part of CDB Leasing and the funding is mostly backed by CDB Leasing's credit. The keepwell deed and deed of asset purchase undertaking commit CDB Leasing to ensure CDBL Funding 1 and CDBALF have sufficient liquidity to meet their obligations under the guaranteed notes and remain solvent and as going concerns at all times. Under the deed of asset purchase undertaking, CDB Leasing is required to repurchase assets held by CDBALF upon the occurrence of a triggering event for CDBALF to meet any outstanding debt obligations under the notes guaranteed by CDBALF. A triggering event refers to a situation in which CDBALF does not have sufficient liquidity to meet its payment obligations or an event of default. The deed of asset purchase undertaking is an important mechanism to allow CDB Leasing to provide foreign-currency liquidity to CDBALF in a timely manner. CDB Leasing does not require approval from the State Administration of Foreign Exchange for these foreign-currency transactions because buying assets for leasing purposes is a part of CDB Leasing's operating activities sanctioned by the relevant authorities, including the China Banking Regulatory Commission. There could be practical difficulties in enforcing the keepwell deed and deed of asset purchase undertaking, which is not as strong as a guarantee. Nevertheless, the deeds demonstrate a strong propensity for CDB Leasing to support CDBALF, if required. RATING SENSITIVITIES The ratings on CDBL Funding 1's MTN programme and guaranteed notes are directly correlated with significant changes in the willingness or ability of CDB Leasing and CDB to support CDBALF, if required. Any significant changes in the perceived willingness or ability of China's sovereign to support CDB and CDB Leasing in a full and timely manner is also likely to affect the rating on the programme and guaranteed notes to the same magnitude. Contact: Primary Analyst Katie Chen Director +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F No. 205, Dunhwa North Road Songshan District Taipei City, Taiwan 105 Secondary Analyst Shirley Hsu Associate Director +886 2 8175 7606 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Date of Relevant Rating Committee: 22 February 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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