Standard & Poor's Ratings Services assigned its 'BB+' corporate credit rating to Connecticut-based aircraft lessor Aircastle Ltd.

At the same time, S&P assigned its 'BB+' issue-level rating and '3' recovery rating to the company's proposed $300 million senior notes due 2018, indicating its expectations of meaningful (50% to 70%) recovery in a payment default scenario. The company will offer the notes via Rule 144A with registration rights.

The issue-level rating on Aircastle reflects the company's position as a midsize provider of aircraft operating leases and its diversified fleet, as measured by aircraft types and location of lessees. Limiting credit considerations include exposure to cyclical demand for aircraft; fluctuations in lease rates and aircraft values; weak credit quality of some airline customers; and a substantial percentage of encumbered assets.

The ratings agency said it expects Aircastle's financial profile to improve modestly after 2010, with higher earnings and cash flow offsetting incremental debt to fund new aircraft deliveries.

"We do not consider an upgrade likely until demand and lease rates for aircraft lessors begin to demonstrate sustainable improvement, which will likely result from higher levels of airline traffic," said Standard & Poor's credit analyst Betsy R. Snyder. "However, we could consider an upgrade if the company issued additional equity, using the proceeds to pay down debt. These trends would have to translate into a stronger financial profile, with funds from operations (FFO) to total debt increasing to the high-teens percent area or debt to capital approaching 50%. We could lower the ratings if Aircastle completed a large debt-financed aircraft portfolio acquisition, causing debt to capital to rise to the mid-70% area and FFO to total debt to decline to below 10%."