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Mitsubishi UJF Lease will acquire all of the outstanding equity interests of JSA for approximately JPY100 billion. As a group, JSA has a fleet of about 70 aircraft with customers around the world.
In our view, the acquisition is likely to put downward pressure on Mitsubishi UFJ Lease's financial standing because it will finance a substantial part of the acquisition with fresh debt, which will increase its debt burden. Also, it will bear a considerable amount of goodwill, which will erode its capitalization (adjusted total equity, which Standard & Poor's calculates by adjusting stockholders' equity). In turn, that would lower its ratio of capital to total assets. Also, in general, there may be operational risks associated with the transfer of the ownership of JSA to Mitsubishi UFJ Lease, including Mitsubishi UFJ Lease's ability to maintain the quality of JSA's human resources. However, the aircraft leasing business has relatively high growth potential, although it involves a certain level of volatility. Therefore, we believe the acquisition will expand Mitsubishi UFJ Lease's business franchise and revenue base, and benefit its business risk profile in the medium term. The stand-alone credit profile (SACP) on the company remains unchanged based on our view that the acquisition has limited negative impact on the SACP.
The stable outlook on Mitsubishi UFJ Lease reflects the graduation in the group credit profile (GCP) that we have assigned to Mitsubishi UFJ Financial Group Inc. (MUFG; A/Stable/--). (GCP 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.) We consider Mitsubishi UFJ Lease "strategically important" to MUFG in our rating analysis. The rating on Mitsubishi UFJ Lease is two notches higher than its SACP because it incorporates potential group support.
We may consider downgrading Mitsubishi UFJ Lease if any of the following occurs: The group credit profile is lowered; an event materially affects the company's credit quality and causes us to substantially lower its SACP; or the company's importance to the group weakens and we see a lower likelihood of it receiving extraordinary support from the group as a result of the aforementioned event or a change in the group's policies.
Conversely, we may upgrade Mitsubishi UFJ Lease if either of the following occurs: the group credit profile is raised; or the company's importance to the group grows markedly and leads us to see a significantly higher likelihood of the company receiving extraordinary support from the group.
Group Rating Methodology And Assumptions, Nov. 9, 2011
Rating Finance Companies, March 18, 2004