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Global Credit Research - 11 Aug 2010
New York, August 11, 2010 -- Moody's Investors Service downgraded the corporate family and senior unsecured
ratings of American General Finance Corp. (AGFC) to B3 from B2,
after American International Group, Inc. announced that it
will sell 80% of AGFC and its immediate parent, American
General Finance Inc. (AGF), to certain funds and affiliates
of Fortress Investment Group LLC. AGFC's rating outlook is
The downgrade of AGFC's ratings reflects Moody's view that
the pending sale of the firm results in a lower expectation of support
from AIG. Previous to today's rating action, AGFC's
long-term ratings incorporated one notch of uplift for implicit
AIG support. Moody's assumes no support associated with AIG's
post-sale 20% minority interest in AGF.
The developing outlook reflects Moody's view that AGFC's ratings
have a relatively evenly balanced probability of being either upgraded,
affirmed, or downgraded over the outlook horizon of 12 to 18 months.
"It is uncertain how the proposed sale will affect AGFC's
operational strategy, capital structure, and liquidity and
market access," said Moody's senior analyst Mark Wasden.
"We will seek greater clarity on these issues as the transaction
progresses and will refine our ratings and outlook accordingly.
This could take several months, given the projected closing in the
first quarter of 2011."
Moody's said that AGFC's long-term ratings could be
upgraded if the company demonstrates improved access to funding,
strengthens its contingency funding plan, and returns to an acceptable
level of profitability, based upon improved asset quality performance.
Conversely, ratings could be downgraded if AGFC's asset quality
and earnings deteriorate beyond current expectations, its capital
position weakens materially, it is unable to establish access to
funding that preserves franchise positioning and improves net interest
margin, or if it seems likely to pursue a financial transaction
or restructure that results in creditor losses.
AGFC's B3 corporate family rating reflects its established position as
a national branch-based consumer lender and its adequate capital
position, offset by challenges associated with its funding constraints
and weak operating performance. Moody's believes AGFC's
franchise value has been impaired by funding uncertainties that have caused
it to significantly reduce its lending activity, consequently lowering
its performance prospects. In April 2010, AGFC issued $3
billion of secured debt that measurably improved the firm's near-term
liquidity position. However, AGFC has few alternative sources
of liquidity to support its operating and financial obligations.
AGFC asset quality performance, though weak, nevertheless
compares favorably to other sub-prime mortgage lenders.
However, AGFC has reported eight quarters of pre-tax losses
resulting primarily from high credit costs. Though signs of improvement
in asset quality measures have emerged in the last few quarters,
Moody's believes AGFC's earnings and profitability are likely to continue
to be weak in the near term, reflecting a sluggish economic recovery,
continued high unemployment, and pressure on home values.
Ratings affected by today's action include:
American General Finance Corporation:
Corporate Family: to B3 from B2
Senior Unsecured: to B3 from B2
AGFC Capital Trust I:
Preferred Stock: to Caa2 from Caa1
AGFS Funding Company:
Senior Secured Bank Loan: to B2 from B1
In its last AGFC rating action on April 8, 2010, Moody's assigned
a rating of B1 to a $3 billion secured term loan issued by AGFS
Funding Company, guaranteed by American General Finance Corp.
The principal methodology used in rating AGFC is Analyzing the Credit
Risks of Finance Companies, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these issuers can also be found in
the Rating Methodologies sub-directory.
American General Finance Corporation, headquartered in Evansville,
Indiana, provides retail consumer finance and credit insurance products
to consumers through a multi-state branch network.
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades American General Finance to B3 with a developing outlook
250 Greenwich Street
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