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Pacific Life and its $1.77B aircraft leasing business receive higher ratings

has notpublicly revealed plans for its future ownership of Aviation Capital Group Corp., or ACG, seven months afterit raised the specterof an initial public offering for a portion of its stake in the aircraft lessor.

But S&PGlobal Ratings, in a pair of announcements upgrading ratings for both businesses,highlighted what may represent a key reason that Pacific Life intends to maintainat least majority ownership of ACG.

"Weview ACG as providing the group with consistent operating income that is not significantlyaffected by interest rate or equity market disruptions," S&P Global Ratingssaid in a release. S&P Global Ratings and Market Intelligence are owned by S&PGlobal Inc.

The ratingagency said ACG accounts for about 20% of Pacific Life's GAAP equity base and contributesan average of between 15% and 20% of its total revenue and adjusted operating income.It raised the aircraftlessor's ratings to A- from BBB-, reflecting a revision of its characterizationof the business as being "strategically important" to Pacific Life asa result of back office, risk management and equity alignment.

"Thisis further emphasized through its intent to grow this operating subsidiary furthervia a potential IPO of part of the company's equity base, albeit limited to a minorityinterest," S&P Global Ratings said.

The ratingagency cited Pacific Life's "continued improvement and progression" ofits enterprise risk management framework in raisingratings for the insurance group to AA- from A+. S&P Global Ratings said it nowviews the group's enterprise risk management as "adequate," highlightedby "strong risk controls" that result from heavy investments in comprehensivecapital modeling capabilities and improvements made on credit, equity and insurancerisk controls that it considered "robust" relative to peers.

The ratingagency had lowered itsratings for Pacific Life and its core operating subsidiaries to A+ from AA- in May2010, the second such downgradethe previously AA-rated Pacific Life suffered in the span of 15 months.

S&PGlobal Ratings had lowered its corporate credit rating on ACG in September 2012to BBB- from BBB, citing weaker-than-expected operating and financial performance.The company reacted with disappointment to that downgrade, saying at the time thatit believed the rating agency's standardized methodology "misses [ACG's] moresophisticated operational and financial risk management practices." In responseto the July 11 upgrade, the company said it was pleased with the rating agency's"recognition of our performance and in the execution of our strategy."

The PacificLife organization made its initial investment in ACG in 1996. It built its ownershipstake in the aircraft lessor over time from a minority position to 100%. PacificLife, itself, obtained direct ownership of 100% of ACG's equity, effective Dec.31, 2009, through a contribution by its immediate parent, Pacific Mutual Holding Co. unit Pacific LifeCorp.

A reviewof disclosures on the investment detail schedules of Pacific Life's annual statementsfinds that the carrying value of the company's investment in ACG expanded to morethan $1.77 billion as of year-end 2015 from $589.2 million at the time the insurancecompany first obtained its position. The year-end 2015 carrying value of the investmentwas well in excess of its actual cost of less than $1.09 billion, which includeda $150 million capital contribution by Pacific Life in 2014.

AviationCapital had $9.3 billion in total assets and 266 aircraft either owned or managedas of the end of 2015, according to Pacific Life's annual report.

, a newlyformed company that will consist of the aircraft leasing business of , referenced ACG'spotential IPO and American InternationalGroup Inc.'s 2014 saleof its former aircraft leasing business among several positive market dynamics asit prepares for a separationfrom its current ownership or a possible sale.

"Lessors'financial profiles have been strengthened by the improved performance and profitabilityacross the airline sector," C2 Aviation said in a regulatory filing.

Althoughno public registration statement for a prospective ACG IPO has been filed with theSEC, Pacific Life said in December 2015 that the goal of such a transaction wouldbe to give the aircraft lessor access to additional capital to support its growthstrategy. The company characterized the unit as an "important component ofits diversified portfolio of businesses," something that ACG's higher ratingswould appear to reflect.