Fitch Ratings-Chicago-19 September 2018: Fitch Ratings expects to assign an 'A-' rating to BOC Aviation Limited's (A-/Stable) proposed five-year senior unsecured notes.
BOC Aviation plans to use the proceeds from the issuance to fund new capital expenditure and refinance debt. The notes will be issued under the company's USD10 billion global medium-term note programme.
KEY RATING DRIVERS
The expected note rating is equalised with BOC Aviation's Long-Term Issuer Default Rating (IDR) and senior unsecured debt rating because the notes will constitute its direct, unconditional, unsubordinated and unsecured obligations and will rank equally with all its other unsecured and unsubordinated obligations.
BOC Aviation's ratings were last reviewed during Fitch's aircraft-leasing peer review of 10 publicly rated firms on 17 July 2018. BOC Aviation's Long-Term IDR reflects Fitch's view that the company is a strategically important subsidiary of its majority parent, Bank of China Limited (BOC; A/Stable), as defined under Fitch's Non-Bank Financial Institutions Rating Criteria. BOC Aviation has strong links with BOC, which is evident in shared branding, a high level of BOC representatives on BOC Aviation's board, cross-selling initiatives between the two entities and the fact that BOC provides contingency liquidity support. Counterbalancing these factors is BOC Aviation's small size relative to the broader organisation and the fact that it operates in a different jurisdiction.
Non-bank financial institutions deemed to be strategically important subsidiaries are typically rated one to two notches below the parent company's Long-Term IDR. BOC Aviation's Long-Term IDR is one notch lower than BOC's Long-Term IDR.
RATING SENSITIVITIES
The ratings of the senior unsecured debt and medium-term notes are sensitive to changes in BOC Aviation's IDR and the level of unencumbered balance-sheet assets available in a stressed scenario relative to outstanding unsecured debt. A decline in the level of unencumbered asset coverage combined with a significant increase in the use of secured debt could result in wider notching between the 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 two entities' IDRs.
BOC Aviation's ratings could be downgraded should BOC seek to dispose of, or meaningfully reduce its ownership in, BOC Aviation, resulting in significant influence by minority shareholders, although this is not expected by Fitch. A downgrade could also occur if there are other developments within BOC that Fitch perceives 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 was to deteriorate, thereby not delivering the return on investment envisaged by BOC. This could affect 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 is owned by BOC. It is a leading global aircraft operating leasing company with a portfolio of 487 owned, managed and committed aircraft at end-June 2018. BOC Aviation is traded on the Hong Kong Stock Exchange under stock code '2588'.