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Rating Action:

Moody's places Springleaf's and OneMain's B2 ratings on review for downgrade following acquisition announcement

03 Mar 2015

New York, March 03, 2015 -- Moody's Investors Service ("Moody's") placed the B2 corporate family rating of Springleaf Holdings, Inc. ("Springleaf") and the B2 senior unsecured rating of operating subsidiary Springleaf Finance Corporation ("SFC") on review for downgrade following the company's announcement that it will acquire OneMain Financial Holdings, Inc. ("OneMain") from Citigroup, Inc. for $4.25 billion in an all-cash transaction. Moody's also placed OneMain's B2 corporate family and senior unsecured ratings on review for downgrade.

RATINGS RATIONALE

The rating action reflects the pending transaction's several risks to Springleaf's bondholders including: 1) increased leverage; 2) weakened liquidity; and 3) integration complexity given the size of the acquisition.

Moody's estimates that Springleaf's leverage, measured as debt to tangible equity, could increase substantially on a pro-forma basis from 4x at September 30, 2014. Likewise, the company's balance sheet leverage, measured as tangible common equity to tangible managed assets, will weaken substantially from approximately 20% at September 30, 2014 to below 4%, as estimated by Moody's, assuming no change in the company's capital structure. The deterioration in leverage metrics would result from the additional borrowing of approximately $1 billion that Springleaf is contemplating at the time of the acquisition and from the assumption of OneMain's debt, as well as from a large amount of goodwill due to the $2 billion purchase price premium. The small size of Springleaf's pro forma tangible equity buffer would indicate limited loss-absorption capacity.

Springleaf's liquidity profile will materially weaken after the transaction given that the company intends to fund the entire $4.25 billion acquisition with cash on hand, which Moody's estimates to be approximately $4 billion. Post-acquisition, Springleaf's primary source of liquidity will be availability under secured warehouse conduit facilities, as well as proceeds from a potential sale or financing of remaining non-core real estate loans totaling approximately $1 billion. With the purchase of OneMain, Springleaf will get access to the additional pool of unencumbered assets that could be securitized, subject to market conditions. In 2015, Springleaf also faces approximately $800 million of unsecured debt maturities that it will need to manage through its remaining liquid resources or through future capital markets access, exposing the firm to refinancing risk.

Moody's also believes that the size of the business combination will result in integration risks that could be disruptive to the combined company's operational stability until the transition is completed. Measured on a loan portfolio basis, OneMain is substantially larger than Springleaf, with OneMain's loan portfolio of $8.3 billion being more than twice the size of Springleaf's core loan portfolio of $3.6 billion at September 30, 2014. Post-acquisition, the combined entity will be run as separate companies until the planned integration commences in mid-2016. At that point, Springleaf will begin integrating the systems and facilities and consolidating some of the branches. The company expects to incur approximately $250 million of acquisition-related costs. Moody's also notes that the complementary strategies and locations of the two companies could drive growth and performance improvements in coming periods that strengthen franchise positioning if the integration is effectively managed. Scheduled to close in the third quarter of 2015, the acquisition is subject to regulatory approvals and other conditions.

Moody's review will assess the adequacy of the combined entity's capital and liquidity/funding profile, the costs and timelines associated with integration efforts, and potential implications for franchise positioning and operating performance stemming from the transaction.

Downward rating pressure could emerge if we believe that Springleaf's balance sheet leverage, measured as tangible common equity to tangible managed assets is expected to remain below 4% for an extended period. The ratings could also be downgraded if the company does not maintain sufficient liquidity buffer commensurate with the heightened liquidity risk stemming from a large acquisition that might require additional unforeseen expenses, beyond the day-to-day operating and financing needs. The ratings could be downgraded if the integration results in higher than anticipated operating costs, or if performance of the combined entity fails to meet expectations.

Ratings could be affirmed if Springleaf improves its balance sheet leverage, measured as tangible common equity to tangible managed assets, to above 4% within a short timeframe, if it builds a sufficient liquidity buffer commensurate with the heightened liquidity risk stemming from a large acquisition, and if integration of OneMain is executed according to expectations.

A summary of today's action follows:

Springleaf Holdings, Inc.:

Corporate Family: B2 rating placed on review for downgrade

Senior Unsecured Shelf: (P)Caa1 rating placed on review for downgrade

Subordinated Shelf: (P)Caa2 rating placed on review for downgrade

Junior Subordinated Shelf: (P)Caa3 rating placed on review for downgrade

The provisional ratings for each debt class for Springleaf Holdings, Inc. are shown as non-backed (assuming no guarantee from Springleaf Finance Corporation). Should the debt securities issued by Springleaf Holdings, Inc. be guaranteed by Springleaf Finance Corporation, the ratings would be equalized with those of Springleaf Finance Corporation.

Springleaf Finance Corporation:

LT Issuer: B2 rating placed on review for downgrade

Senior Unsecured: B2 rating placed on review for downgrade

Senior Unsecured MTN Program: (P)B2 rating placed on review for downgrade

Senior Unsecured Shelf: (P)B2 rating placed on review for downgrade

Subordinated Shelf: (P)B3 placed on review for downgrade

Junior Subordinated Shelf: (P)Caa1 placed on review for downgrade

AGFC Capital Trust I:

Preferred Stock: Caa1(hyb) rating placed on review for downgrade

OneMain Financial Holdings, Inc.

Corporate Family: B2 rating placed on review for downgrade

Senior Unsecured: B2 rating placed on review for downgrade

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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

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.

Anna Sherbakova
Analyst
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 places Springleaf's and OneMain's B2 ratings on review for downgrade following acquisition announcement
No Related Data.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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