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MCDONNELL DOUGLAS FINANCE CORP. 'BBB+' SENIOR DEBT AFFIRMED BY FITCH -- FITCH FINANCIAL WIRE --

MCDONNELL DOUGLAS FINANCE CORP. 'BBB+' SENIOR DEBT AFFIRMED BY FITCH
 -- FITCH FINANCIAL WIRE --
 NEW YORK, Dec. 3 /PRNewswire/ -- McDonnell Douglas Finance Corp.'s (MDFC) $1.6 billion senior debt is affirmed at 'BBB+' and is removed from FitchAlert, where it was placed June 19, 1991. The credit trend is declining.
 The rating had been put on FitchAlert to reflect the proposed sale of MDFC as well as asset quality erosion. After evaluating strategic alternatives, the parent, McDonnell Douglas Corp. (MDC) has decided to refocus the finance company and sell ancillary businesses. Going forward, MDFC will focus on its two core business lines, commercial aircraft and commercial equipment financing. Given the constraints of the current economic environment, Fitch expects that the sale of these non-core businesses will occur over time but continue to wind down in the interim.
 Commercial aircraft (41 percent of the portfolio) and commercial equipment financing (33 percent) are the cornerstones of MDFC's business due to their market leadership positions. Non-core businesses represent the remaining quarter of the portfolio as of Sept. 30, 1991, and include MD Bank (9 percent), commercial real estate (8 percent), market securities investments (2 percent), receivable and inventory financing (2 percent), full-service leasing (3 percent), and MDCC (2 percent). With the recent sale of substantially all of the auto leasing operations, MDFC alleviated a perpetual, disproportionate contributor to charge-offs.
 In addressing asset quality pressures, management dramatically slowed the volume of new business in the aircraft, commercial equipment and MD Bank portfolios, as well as ceased writing new business in all other units. Additionally, the finance company initiated aggressive collection processes and foreclosure proceedings. The implementation of stricter credit parameters resulted in much improved delinquencies of 2.17 percent of the total portfolio at Sept. 30, 1991, compared with a March 31 peak of 6.40 percent.
 Despite the growing number of airline bankruptcies, the aircraft portfolio has stabilized because most of its problem loans have been successfully restructured and are current. Additional pressures may be experienced given the airline industry's weak fundamentals, but that vulnerability is mitigated by the high quality of that portfolio, which is largely Stage III conforming aircraft and on longer-term, direct financing leases. Commercial real estate continues to be the weakest part of the overall portfolio, as 29 percent continues to be non-paying. Fitch expects further deterioration in that portfolio given its exposure to the California real estate market (41 percent). Typical recession- related stresses will continue to pressure overall delinquencies and charge-offs levels, but should not exceed the 5 percent delinquency range, which is consistent with a 'BBB+' rating.
 As a result of its 100 percent ownership by the financially strapped MDC, the finance company was unable to access the public capital markets in 1991. The combination of a decline in asset levels, the matched funding of the portfolio, and sound bank back-up facilities enabled MDFC to prevent a funding crisis and meet maturing debt obligations. Asset maturities and proceeds from the sale of discrete portfolios paid down its bank debt, of which there is none outstanding. Consistent with the disposition of smaller but more capital intensive portfolios, debt leverage of 5.54 times has strengthened over year-end 1990 (6.73 times) and is appropriate given MDFC's current risk profile.
 The recent announcement of a potential 40 percent investment by Taiwan Aerospace in MDC's commercial aircraft business should strengthen the parent company's balance sheet. Improved financial flexibility at the parent should translate into greater access to the public capital markets for MDFC as well.
 -0- 12/3/91
 /CONTACT: Valerie Gerard of Fitch, 212-908-0500/
 (MD) CO: McDonnell Douglas Finance Corp. ST: California, Missouri IN: ARO SU: RTG


CK -- NY056 -- 8794 12/03/91 13:27 EST
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Publication:PR Newswire
Date:Dec 3, 1991
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