Approximately $19 Billion of Debt Securities Affected
New York, March 17, 2009 -- Moody's Investors Service lowered the long-term senior debt ratings
of American General Finance Corporation ("AGFC ") to Baa2 from Baa1.
The short-term rating of AGFC and the backed-commercial
paper rating of CommoLoCo, Inc. were affirmed at Prime-2.
The Prime-2 short-term rating of AGFC's direct parent,
American General Finance Inc. ("AGFI"), was confirmed.
The rating on AGFC's trust preferred security, AGFC Capital
Trust I, was lowered to Ba2 from Baa3. The rating outlook
for AGFC and its rated affiliates is negative.
Today's rating action concludes the review for possible downgrade
that was initiated on October 3, 2008, in conjunction with
rating actions taken at that time on the firm's ultimate parent
American International Group, Inc. ("AIG"). On March
02, 2009, Moody's confirmed AIG's A3 senior unsecured
debt and Prime-1 short-term debt ratings and assigned a
negative outlook.
Moody's said that the rating action on AGFC reflects continued deterioration
in the finance company's intrinsic credit profile. Although
AGFC possesses a good core consumer-finance franchise, with
long-standing customer relationships and a presence across much
of the U.S., the firm's intrinsic credit strength
has declined from once-robust historical levels as a result of
the turmoil across US mortgage and credit markets. Blaine Frantz,
a Moody's Senior Vice President, noted: "Excluding the benefit
of parental support, AGFC's intrinsic credit strength has
fallen into the non-investment grade category."
Moody's expects that AGFC's profitability and overall credit
profile will be further pressured through 2009 by continued recessionary
conditions and rising U.S. unemployment. AGFC's
intrinsic liquidity position and financial flexibility are also constrained,
with the company having to sharply curtail loan originations and look
for opportunities to sell assets. Absent asset sales or other forms
of portfolio monetization, the finance company will have to rely
on AIG for liquidity support.
The rating agency said that AGFC's Baa2/Prime-2 ratings receive
a ratings lift relative to the company's intrinsic credit strength.
Despite its challenges, ultimate parent AIG has been a demonstrable
source of strength for the finance company, providing both capital
and liquidity to AGFC. Though AGFC is not a core AIG holding,
Moody's expects that as long as AIG owns AGFC, it will continue,
within its capacity, to provide capital and liquidity support in
order to preserve AGFC's franchise and economic value to the greatest
degree possible. Although AGFI is a holding company, the
entity also benefits from AIG support, with no material differentiation
versus AGFC. This support by AIG underpins AGFI's Prime-2
short-term rating.
Given that AGFC's ratings rely on significant AIG support,
the outlook on AGFC mirrors that of AIG. Any decline in AIG's
rating, depending upon the degree, could also result in a
downgrade of AGFC's debt ratings.
With respect to AGFC's trust preferred securities (AGFC Capital
Trust I), Moody's lowered the ratings to Ba2 from Baa3. AGFC
recently breached a mandatory non-payment trigger, which
activated the Alternative Coupon Settlement Mechanism (ACSM). Under
the terms of the ACSM, AIG made a capital contribution to AGFC resulting
in payment of the coupon. In the event that the trigger breach
is not cured immediately due to current market pressures on AGFC,
the rating reflects the concern that AIG may not continue to fund coupon
payments due to its own liquidity strains and/or a need for additional
government support. The risk of a potential restructuring at AIG
is also a consideration. If these events happened, AGFC would
not have the market access to issue preferred securities, which
are the other form of ACSM settlement securities in addition to common
equity. Any unpaid coupons will accumulate and investors may not
receive payments for an extended period of time, thus resulting
in an additional notch of the hybrid rating relative to AGFC's senior
unsecured debt rating.
The last rating action on AGFC was on October 3, 2008, when
the company's long-term ratings were placed on review for possible
downgrade.
The principal methodology used in rating American General Finance Corporation
is "Analyzing the Credit Risks of Finance Companies," which can
be found at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Credit Policy & Methodologies
directory.
American General Finance Corporation, headquartered in Evansville,
Indiana, is a financial service holding company with subsidiaries
that provide retail consumer finance and credit insurance products to
consumers via a network of 1,400 branches spread throughout 40 states.
Excluding a one-time charge of $439.4 million for
goodwill and intangibles, AGFC reported for the first nine months
of 2008 a pretax loss of $244 million on net revenues of $1.2
billion.
Downgrades:
..Issuer: AGFC Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to Ba2 from Baa3
..Issuer: American General Finance Corporation
....Issuer Rating, Downgraded to Baa2
from Baa1
....Multiple Seniority Medium-Term
Note Program, Downgraded to Baa2 from Baa1
....Senior Unsecured Medium-Term Note
Program, Downgraded to Baa2 from Baa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from Baa1
....Senior Unsecured Shelf, Downgraded
to (P)Baa2 from (P)Baa1
Outlook Actions:
..Issuer: AGFC Capital Trust I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: American General Finance Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: American General Finance, Inc.
....Outlook, Changed To Negative From
Rating Under Review
Confirmations:
..Issuer: American General Finance, Inc.
....Senior Unsecured Commercial Paper,
Confirmed at P-2
New York
Blaine A. Frantz
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's lowers American General Finance to Baa2; Outlook is negative