TRIS Rating has revised downward the outlook of the issue ratings of guaranteed debentures of Thai ORIX Leasing Co., Ltd. (TOLC) to “negative” from “stable”. At the same time, TRIS Rating has affirmed the “AA+” ratings to the guaranteed debentures. The outlook revision reflects an expected weaker creditworthiness of ORIX Corporation (ORIX) in Japan (Guarantor) due to unsupportive economic environment in Japan which likely constrains ORIX’s profitability. All of TOLC’s outstanding debentures are fully guaranteed by TOLC’s parent company, ORIX, a company rated “A-/Negative” and “Baa1/Stable” on the international scale rating by Standard & Poor’s and Moody’s Investor Services (Moody’s), respectively. The ratings of the guaranteed debentures assigned by TRIS Rating are based on the credit quality of the guarantor and the unconditional and irrevocable guarantee of the debentures.
Under the guarantee agreement, which is governed by the laws of Japan, the guarantor unconditionally and irrevocably guarantees to promptly make payment to the debentureholders of all sums payable by TOLC under the obligations of the rated debentures, in the event that TOLC has no ability to pay. In addition, if there is any merger or consolidation of ORIX, the successor of ORIX shall assume these guaranteed obligations. In case the guarantor fails to pay the amount due after receiving notice, the debentureholders’ representative can commence legal action against the guarantor in court in Japan for the amount in default. The guarantee cannot be amended or terminated without the unanimous consent of the debentureholders.
The rating of ORIX, the guarantor, is supported by its strong business profile. ORIX’s key strengths are its diverse lines of business and sources of earnings. ORIX depends on the capital market for its sources of funds. However, ORIX has a number of financing sources which mitigate the risk of an overreliance on the capital markets for the funds it needs.
The “negative” outlook for TOLC’s guaranteed debentures reflects the expected decline in creditworthiness of its guarantor, ORIX, which has received international scale ratings of “A-” with a “negative” outlook from Standard and Poor’s and “Baa1” with a “stable” outlook from Moody’s. The prolonged unfavorable economic environment of Japan is expected to constrain ORIX’s profitability and likely to affect its creditworthiness.
The ratings and/or outlook for TOLC’s guaranteed debentures could be revised upward or downward, should there be any changes in ORIX’s creditworthiness.
ORIX was established in 1964 through the cooperation of five financial institutions and three trading companies. ORIX was a pioneer in the Japanese leasing industry. Through more than 50 years of operation, ORIX has diversified its product offerings and now offers a broad range of financial services in addition to leasing services. At the end of June 2015, ORIX’s total assets were 11.3 trillion yen, rising 24% from the end of fiscal year 2014 (FY2014). ORIX’s total assets were composed of 2.5 trillion yen in installment loans (22% of total assets), 2.6 trillion yen in investments in securities (23%), 1.3 trillion yen in investments in operating leases (11.9%), and 1.2 trillion yen in investments in direct financing leases (10.7%). At the end of June 2015, in terms of segment assets, the Retail segment constituted 39.9% of segment assets, followed by the Overseas Business segment (24.8%), Corporate Financial Services (12.1%), Real Estate (9%), Maintenance Leasing (7.6%), and Investment and Operation (6.7%).
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