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S&P lowers outlook on Japan's ORIX on M&A business risk

S&P Global Ratings lowered the outlook on Japan's ORIX Corp. to negative from stable as its recent acquisitions are expected to increase its overall business risk.

The rating agency said Aug. 10 that the outlook revision reflects the view that ORIX's overall business risk will escalate after it carries out the acquisitions of U.S.-based structured financing firm NXT Capital LLC and a 30% stake in Ireland-based aircraft leasing company Avolon Holdings Ltd.

The negative outlook reflects a more than one-in-three chance that S&P would downgrade ORIX in the next two to three years. S&P also affirmed the company's long-term issuer credit ratings at A-.

The planned acquisitions will push down ORIX's risk-adjusted capital ratio to 10.7% from 12.9% at the end of March, S&P noted, adding that the company's continuous global expansion requires more foreign-currency funding, which may affect its financial profile during market downturns.

In July, ORIX said it will purchase NXT Capital through its unit ORIX Corp. USA. Following the transaction, NXT Capital will become a subsidiary of ORIX USA.

Earlier in August, the Japanese company, through Irish unit ORIX Aviation Systems Ltd., agreed to acquire a 30% stake in Avolon Holdings from Bohai Capital Holding Co. Ltd. for about US$2.22 billion.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.