Fitch Ratings has downgraded the Long-Term Issuer Default Rating (LT IDR) of SMBC Aviation Capital Limited (SMBC AC) to 'BBB+' from 'A-' and its Shareholder Support Rating (SSR) to 'BBB+' from 'A-'. Fitch has also downgraded SMBC Aviation Capital Finance DAC's LT IDR and senior unsecured notes ratings to 'BBB+' from 'A-'. The Rating Outlook on the IDRs of SMBC AC and SMBC Aviation Capital Finance DAC is Stable.
The rating actions follow the recent downgrade of SMBAC AC's 66% beneficial owner, Sumitomo Mitsui Financial Group, (SMFG) to 'A-'/Stable from 'A'/Negative.
“SMBC AC's management expects to close the acquisition of Goshawk Aviation Limited in the coming weeks. We believe the acquisition will not materially change the propensity of SMFG to support SMBC AC,” Fitch ratings said.
The downgrade of SMFG's ratings was driven mainly by weakening of the capitalization of the group. SMFG's ratings remain supported by a high likelihood of support from the Japanese government, a stable operating environment outlook, a sound business profile and funding position and stabilizing asset quality.
SMBC Aviation Capital Finance DAC's IDR is equalized with SMBC AC's, reflecting the full and unconditional guarantee of SMBC Aviation Capital Finance DAC's obligations by SMBC AC.
The senior unsecured note rating is equalized with SMBC AC's Long-Term IDR, reflecting Fitch's expectation of average recovery prospects given that most of the company's consolidated debt is unsecured.
A change in SMBC AC's LT IDR would be mirrored in SMBC Aviation Capital Finance DAC's LT IDR and senior unsecured notes ratings.