TEXT-S&P:Mitsubishi UFJ Lease & Finance Co. rated 'A';otlk stable

We expect Mitsubishi UFJ Lease's revenues to remain under pressure because the domestic leasing market is still sluggish. At the same time, the company's overseas business, which it aims to expand, makes a limited contribution to its revenues. The asset quality of its real estate- and shipping-related financing operations, which account for a certain proportion of its business, may deteriorate due to weak market conditions in recent years. However, the company has tightened its credit policy over the past few years, and we think this makes it unlikely for its asset quality to deteriorate significantly. We expect steady profits for the next one to two years because the company keeps its funding and credit costs in check.

The accumulation of retained profits and reduction of assets have been pushing up Mitsubishi UFJ Lease's capital ratio in recent years, and we believe its capitalization is adequate in relation to the financial risks it undertakes. Short-term financing accounts for a rather large proportion of the company's total outstanding debt, in our view. However, we are not concerned about the company's liquidity because it has credit facilities from multiple banks. It can also expect financial support from Bank of Tokyo-Mitsubishi UFJ Ltd. (A+/Stable/A-1) should the need arise.

We consider Mitsubishi UFJ Lease "strategically important" to the MUFG group because leasing is one of the group's major businesses. The company also has strong financial and operational ties with the banks within the group. This assessment takes into account: our view that the company makes a limited contribution to the group's earnings; and the fact that Mitsubishi UFJ Lease conducts its day-to-day risk management and business operations in a way that is relatively independent of the MUFG group.

The rating on Mitsubishi UFJ Lease is two notches higher than its stand-alone credit profile (SACP). We have incorporated two notches of potential group support based on our view that the company is "strategically important" to the MUFG group. Under our criteria, we generally assign ratings three notches higher than the SACP to companies that are "strategically important" within their banking groups. At the same time, however, our criteria cap the ratings at one notch below the group credit profile (which is our opinion of a group's creditworthiness as if the group were a single legal entity, and is conceptually equivalent to an issuer credit rating). As a result, the rating on Mitsubishi UFJ Lease is two notches higher than its SACP and one notch lower than those on the core operating banks within the MUFG group.

The outlook on the long-term counterparty credit rating on Mitsubishi UFJ Lease is stable, reflecting that on the ratings on the core operating banks within the MUFG group. We may consider downgrading the company if either or both of the following occur: the group credit profile is lowered; the company's importance to the group weakens and we see a lower likelihood of it receiving extraordinary support from the group. Conversely, we may upgrade the company if either or both of the following occur: the group credit profile is raised; the company's importance to the group grows significantly and we see a significantly higher likelihood of the company receiving extraordinary support from the group.

RELATED CRITERIA AND RESEARCH

Group Rating Methodology And Assumptions, Nov. 9, 2011

Rating Finance Companies, March 18, 2004

RATINGS LIST

New Ratings; CreditWatch/Outlook Action

Mitsubishi UFJ Lease & Finance Co. Ltd.

Counterparty Credit Rating A/Stable/--