NOTE: On May 20, 2013, the press release was revised as follows: add a hybrid indicator “(hyb)” to the Preferred Stock ratings of AGFC Capital Trust I. Revised release follows..
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(hyb)
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
