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Rating Action:

Moody's confirms Enova's senior unsecured and corporate family ratings at B2 concluding review; outlook is negative

30 Oct 2020

New York, October 30, 2020 -- Moody's Investors Service, ("Moody's") has confirmed Enova International, Inc.'s (Enova) B2 long-term senior unsecured and corporate family ratings; the outlook is negative. Today's announcement concludes the review for downgrade commenced on 29 July 2020, following the company's announcement to acquire fintech business lender On Deck Capital, Inc. (OnDeck)

List of affected ratings:

Confirmations:

..Issuer: Enova International, Inc.

.... Corporate Family Rating, Confirmed at B2

....Senior Unsecured Regular Bond/Debenture, Confirmed at B2

Outlook Actions:

..Issuer: Enova International, Inc.

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

The ratings confirmation reflects Moody's unchanged view of Enova's standalone credit assessment following the 13 October 2020 announcement that the firm completed the acquisition of OnDeck Capital (OnDeck), an online small business lender, which it announced on 28 July. Moody's considers the acquisition as transformative for Enova, given that small business loans represented just 12% of Enova's loan portfolio at 30 September 2020. Pro-forma for the OnDeck acquisition, small business loans will account for over half of the receivables of the combined entity; gross receivables pro-forma for the combination were $2.4 billion at 30 June 2020, compared to $1.2 billion for Enova as a standalone entity, as of the same reporting date.

While the integration presents near term operational risks, including integration risk, Moody's believes these will be mitigated by Enova's greater business diversification and lower reliance on deep subprime consumer lending, an industry with a very high degree of regulatory risk. Enova's management team has experience executing prior acquisitions, albeit not at the scale of the OnDeck acquisition since Enova became a public company in 2014. Moody's does not expect the transaction to lead to an immediate meaningful change in Enova's leverage profile; the ratio of tangible common equity to tangible managed assets stood at approximately 19.7% at 30 June 2020, and has improved significantly in the past three years, although is unlikely to remain at such high levels given the current low-origination environment as a result of the ongoing coronavirus pandemic.

The negative outlook reflects the risks to creditors from remaining operational risks associated with integrating the OnDeck business, particularly during a period of substantial economic volatility stemming from the coronavirus pandemic. Somewhat mitigating these risks is Enova's strong liquidity, which included $490 million in unrestricted cash and $124 million in revolver capacity at the legacy Enova business at 30 September 2020, which should allow the firm to fund its operations until well into 2021 without needing to access the capital markets.

Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety. Today's rating action reflect the negative effects on Enova of the breadth and severity of the shock, and the risk of deterioration in credit quality, profitability, capital and liquidity it has triggered.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the negative outlook, an upgrade of the ratings is unlikely over the next 12-18 months. However, the outlook could be revised to stable if Enova is able to achieve its synergy targets associated with the OnDeck acquisition, and if net income to average managed assets (NI/AMA) is expected to be 5% or above, with tangible common equity to tangible managed assets above 15%.

The ratings could be downgraded if Moody's expects Enova's NI/AMA to remain below 4% for a protracted period, or if leverage and liquidity meaningfully deteriorate, or if the firm experiences a material operational failure.

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Bruno Baretta
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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