OREANDA-NEWS. S&P Global Ratings today said it has assigned its 'BBB+' long-term issue rating to a proposed issue of senior unsecured notes by BOC Aviation Ltd. (A-/Stable/--; axAA/--) under the company's US$5 billion global medium-term note (GMTN) program.

The issue rating is one notch below the corporate credit rating on BOC Aviation because the company's total secured debt exceeds our notching threshold of total assets. BOC Aviation expects to use the proceeds for refinancing existing debt, capital spending, and general corporate purposes. The amount of the GMTN program and the program's terms and conditions remain unchanged.

The rating on BOC Aviation reflects the company's good cash flow stability from long leases, sound competitive position, and support from its majority shareholder Bank of China Ltd. (A/Stable/A-1; cnAA+/cnA-1). Tempering these strengths are BOC Aviation's moderately high leverage relative to other rated peers, high capital spending over the next three years, and its exposure to the industry's cyclical demand and aircraft lease rates.

We assess BOC Aviation's stand-alone credit profile at 'bbb-'. The rating incorporates a three-notch uplift because we regard BOC Aviation to be a strategically important subsidiary of Bank of China. We expect Bank of China to maintain a clear majority ownership in BOC Aviation over the next three years at least. Despite BOC Aviation's June IPO, its reputational link with the parent remains intact, in our view, given the name sharing. In addition, BOC Aviation's leasing operations are consistent with Bank of China's strategy to diversify its earnings base into nonbanking products and outside China.

The stable outlook on BOC Aviation reflects our expectation that the company will remain strategically important to Bank of China and receive indirect government support through the bank in the event of financial distress. The stable outlook also reflects our expectation that the company will maintain its sound market share and competitive position and that its financial risk profile will remain broadly stable through 2017. We anticipate that BOC Aviation will maintain a ratio of funds from operations to debt of about 10% and a ratio of debt to capital of 75%-80% over the next 24 months.