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Rating Action:

Moody's revises Springleaf Finance Corporation's rating outlook to positive

Global Credit Research - 08 May 2013

New York, May 08, 2013 -- Moody's Investors Service affirmed Springleaf Finance Corporation's (Springleaf) Caa1 senior unsecured and corporate family ratings and revised its rating outlook to positive from negative.

RATINGS RATIONALE

Affirmation of Springleaf's Caa1 corporate family rating reflects its still evolving operating and funding strategies, limited market access and alternate liquidity sources, and uncertain prospects for returning to sustainable levels of profitability. The positive outlook recognizes Springleaf's improved liquidity position, the result of securitizations of mortgage and personal loan receivables, cash flow from portfolio runoff, and repayment of maturing debt. Moody's expects that Springleaf will further improve its liquidity and financial performance as it implements its operating and funding strategies, but the related execution risks remain high.

In February, Springleaf issued its first securitization of personal loans, a critical step in establishing a funding source for its core consumer finance business. Springleaf has also completed four securitizations of mortgage receivables in the past year, each time extending a liquidity bridge that enabled the company to repay maturing legacy unsecured debt and originate new loan volumes. Proceeds of the recent April mortgage securitization were used to reduce the outstanding balance of the company's secured term loan, which lowered borrowing costs, reduced encumbered assets, and extended average debt maturities. Moody's estimates that Springleaf's strong cash balances, cash generated from real estate portfolio runoff, and operating cash flow provide a liquidity runway of about six quarters. If the firm is able to issue additional securitizations and expand its market access, it could materially extend its liquidity runway, particularly given that debt maturities in 2014, 2015 and 2016 are significantly lower than during the past few years.

Springleaf's liquidity position is constrained by a high reliance on secured funding, a lack of committed backup credit lines, and uncertain access to the debt capital markets given the nonprime and subprime composition of its receivables and string of operating losses.

Springleaf has continued to record operating losses, though the magnitude has gradually diminished. Losses since 2008 have reflected poor asset quality performance in home lending, brought on by the recession and housing market collapse, and by declining portfolio yields and high borrowing costs that compressed net interest margin. In early 2012, Springleaf ceased origination of new mortgage loans, focusing instead on its higher yielding personal loan business. As the mortgage portfolio ages and credit quality issues stabilize, and as mortgage balances run-off and the personal loan portfolio grows, average yield on earning assets and operating margin should increase. Springleaf's recent performance has been aided by efforts to rationalize operating costs, including the closure of non-core and under-performing branches. Key to near-term performance improvement is a reduction in interest expense, which is contingent on the firm's success in executing its funding plan, including further reducing both debt levels and the average cost of borrowing. However, operating results are likely to continue to be compressed in the intermediate term while the company continues to work through portfolio credit performance and funding issues. Additionally, the non-prime and sub-prime characteristics of Springleaf's consumer loan business result in high expected earnings volatility, which is a longer-term credit constraint.

Springleaf's long-term ratings could be upgraded if the company strengthens its market access and liquidity runway and returns operations to sustainable profitability, while also decreasing leverage. Conversely, ratings could be downgraded if Springleaf is unable to execute a funding strategy that leads to a sustainable improvement in its liquidity position or if its prospects for performance improvement materially weaken.

A summary of today's action follows:

Springleaf Finance Corporation:

Corporate Family: affirmed at Caa1

Senior Unsecured: affirmed at Caa1

Commercial Paper: affirmed at Not Prime

Rating outlook: revised to positive from negative

Springleaf Finance, Inc.:

Commercial Paper: affirmed at Not Prime

Springleaf Financial Funding Company:

Backed Senior Secured Bank Loan: affirmed at B3

Rating outlook: revised to positive from negative

AGFC Capital Trust I:

Preferred Stock: affirmed at Caa3

Rating outlook: revised to positive from negative

CommoLoCo, Inc.:

Backed Commerial Paper: affirmed at Not Prime

Springleaf Finance Corporation, headquartered in Evansville, Indiana, provides consumer finance and credit insurance products to consumers through a multi-state branch network.

The principal methodology used in these ratings was Finance Company Global Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises Springleaf Finance Corporation's rating outlook to positive
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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