September 11, 2017 / 7:01 AM / 10 months ago

Fitch Expects to Rate BOC Aviation's USD Senior Notes 'A-'

(The following statement was released by the rating agency) NEW YORK, September 11 (Fitch) Fitch Ratings expects to assign an 'A-' rating to BOC Aviation Limited's (BOC Aviation) proposed five- and 10-year U.S. dollar senior unsecured notes. The issuance size and fixed-rate of interest will be determined at the time of issuance. BOC Aviation plans to use the proceeds from the issuance for capital expenditure and general corporate purposes. The notes will be issued under the company's current USD10 billion global medium-term note (GMTN) program. KEY RATING DRIVERS IDR AND SENIOR DEBT The notes are rated at the same level as BOC Aviation's Long-Term Issuer Default Rating (IDR) and existing senior unsecured debt. This is because the notes will constitute direct, unsubordinated and senior unsecured obligations of the company and will rank equally with all its other unsecured and unsubordinated obligations. BOC Aviation's ratings were last reviewed in conjunction with a broader aircraft leasing peer review conducted by Fitch on July 24, 2017, which includes eight publicly rated firms. The Long-Term IDR reflects Fitch's view of a very high probability of extraordinary support to BOC Aviation from its ultimate parent, Bank of China Ltd. (BOC; A/Stable), if required. This view is based on BOC Aviation's strong links with BOC, which is evident in the parent's shared branding, high level of board representation, cross-selling initiatives, and contingency liquidity support. Counterbalancing these factors is BOC Aviation's small size relative to the broader organization and the fact that it operates in a different jurisdiction. These factors support Fitch's view that BOC Aviation continues to remain strategically important to BOC, as defined under Fitch's 'Global Non-Bank Financial Institutions Rating Criteria'. Financial issuers deemed to be strategically important subsidiaries are typically rated one- to two notches below the parent company's long-term IDR. In BOC Aviation's case, the IDR of 'A-' is one notch lower than BOC's Long-Term IDR. RATING SENSITIVITIES IDR AND SENIOR DEBT The ratings of the notes are sensitive to changes in BOC Aviation's Long-Term IDR and the level of unencumbered balance sheet assets in a stressed scenario, relative to outstanding unsecured debt. A decline in the level of unencumbered asset coverage, combined with a material increase in the use of secured debt could result in the notching between the Long-Term IDR and the senior unsecured debt. BOC Aviation's ratings are primarily sensitive to changes in BOC's ratings, given the one-notch differential between the IDRs of BOC Aviation and BOC. Further, although not expected by Fitch, BOC Aviation's ratings could be adversely affected should BOC seek to dispose of - or meaningfully reduce its investment further in - BOC Aviation, or there are any other developments within BOC, which are perceived by Fitch to alter BOC's willingness or ability to provide support to BOC Aviation. Negative rating action could also be taken if BOC Aviation's operating performance were to deteriorate, thereby not delivering the return on investment envisaged by BOC, to the extent that this had an impact on Fitch's assessment of the propensity of BOC to provide support to BOC Aviation, in case of need. BOC Aviation is based in Singapore and owned by BOC. It is a leading global aircraft operating leasing company with a portfolio of 297 owned and managed aircraft, with total assets of USD14.4 billion at end-June 2017. BOC Aviation is traded on the Hong Kong Stock Exchange under stock code '2588'. Fitch assigns the following expected rating: BOC Aviation Limited --Senior unsecured debt 'A-(EXP)' Fitch currently rates BOC Aviation as follows: BOC Aviation Limited --Long-Term IDR 'A-'; --Medium-term note program 'A-'; --Senior unsecured debt 'A-'. The Rating Outlook is Stable. Contact: Primary Analyst Johann Juan Director +1-312-368-3339 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Katie Chen Director +886 2 8175 7614 Committee Chairperson Justin Fuller, CFA Senior Director +1-312-368-2057 Date of Relevant Rating Committee: July 21, 2017 Summary of Financial Statement Adjustments: Fitch has made no adjustments that are not disclosed within the company's financial statements. 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