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Rating Action:

Moody's upgrades CNG, changes outlooks to Positive on Curo and Enova, affirms Developing outlook on Community Choice and Creditcorp and Stable on Sterling

07 Mar 2018

New York, March 07, 2018 -- Moody's Investors Service ("Moody's") took a number of rating actions on six payday lenders:

CNG Holdings, Inc.'s corporate family and senior secured ratings were upgraded to Caa2 from Caa3; the outlook was revised to stable from developing.

Community Choice Financial Inc.'s corporate family and senior secured ratings were affirmed at Caa3, with a developing outlook.

Creditcorp's corporate family and senior secured ratings were affirmed at Caa3, with a developing outlook.

Curo Financial Technology Corp's senior secured ratings were affirmed at Caa1; the outlook was revised to positive from stable. In the same rating action, Moody's assigned a corporate family rating of Caa1, with a positive outlook, to Curo Financial's holding company Curo Group Holdings Corp. The Caa1 corporate family rating at Curo Financial Technology was withdrawn.

Enova International, Inc.'s corporate family and senior unsecured ratings were affirmed at Caa1; the outlook was revised to positive from stable.

Sterling Mid-Holdings, Inc.'s corporate family rating of Caa3, and the Caa3 senior secured rating of its subsidiary DFC Finance Corp. were affirmed with a stable outlook.

RATINGS RATIONALE

The ratings reflect the following considerations for individual companies:

CNG Holdings, Inc. ("CNG"): The upgrade of CNG's corporate family and senior secured ratings to Caa2 from Caa3 reflects the improving profitability of its core financial services business and the progress the company has made in repositioning its loan portfolios towards longer-term installment lending to comply with the new regulatory environment. The ratings also continue to reflect the refinancing risk the company faces with its senior notes, which mature in 2019 and 2020. The ratings for CNG could be upgraded if the company makes progress on refinancing or extending the maturity of its debt obligations. The ratings for CNG could be downgraded if either distressed exchange or disorderly liquidation scenarios appear to be more likely as CNG approaches its debt maturity dates, or if its financial performance deteriorates, which would heighten the company's refinancing risk.

The outlook change to positive from stable on the ratings of Enova International, Inc. ("Enova") and Curo Group Holdings, Inc. ("Curo") and its subsidiary Curo Financial Technologies ("Curo Financial") reflects the progress both companies have made in repositioning their loan portfolios towards longer-term installment lending to comply with the new regulatory environment. As with all payday lenders, Curo's and Enova's ratings are constrained by the regulatory risk in the sector; however, the companies' lower reliance on payday loans compared to peers is a mitigant.

The future of payday lending regulations remains uncertain, with the Consumer Financial Protection Bureau ("CFPB") issuing a press release in January 2018 stating that it intends to engage in a rulemaking process to reconsider the payday, high-cost installment and single-payment auto title loans rule published three months earlier, in October 2017. If the CFPB makes the final rule less onerous, we would view it as a positive credit development for Curo and Enova and the payday lending sector in general. However, despite the potential weakening of the CFPB's rules, some states are tightening their consumer lending regulations.

Also supporting a positive outlook on Curo's Caa1 corporate family and senior secured ratings are its strong profitability and moderate leverage, and no near-term debt maturities. The company's main credit weakness remains its capitalization, which was further exacerbated by a recent dividend payout. As a traditional lender, Curo needs an equity buffer to absorb unforeseen operating expenses and potentially higher than expected credit costs.

The ratings for Curo could be upgraded if Curo continues to demonstrate a successful transition to longer-term installment lending, as evidenced by solid and stable profitability with minimum amounts of restructuring and other unforeseen operating expenses, with well-managed asset quality, and also sufficient liquidity. The company would also have to demonstrate improvement in its capitalization through earnings retention and to maintain conservative financial policy, without substantial dividends distributions, similar to the ones in the past. The outlook could be changed to stable from positive if the company further de-capitalizes through an equity distribution, if its financial performance weakens, or its leverage meaningfully increases due to additional borrowings. The ratings for Curo could be downgraded if its profitability meaningfully deteriorates and its weak asset quality weakens.

Supporting a positive outlook on Enova's Caa1 corporate family and senior unsecured ratings are the absence of near-term debt maturities, as well the company's solid profitability, underscored by scalability of its online business model with a lower fixed base compared to branch-based lenders. While substantially improved over the past two years, Enova's capitalization remains its main credit weakness, which presents risks as the company is becoming more reliant on longer-term installment lending.

The ratings for Enova could be upgraded if it continues to demonstrate solid profitability and improve its tangible equity through earnings retention. Enova will also need to continue to demonstrate a successful transition to longer-term lending and ability to comply with potential new rules by the CFPB, as evidenced by well-managed asset quality and absence of restructuring and other charges. The outlook could be revised to stable if Enova's leverage, which is already higher than the peer median, increases further, and if the company begins to pursue an aggressive financial strategy with dividend distributions. Enova's ratings could be downgraded if its profitability substantially deteriorates and its asset quality meaningfully weakens.

Creditcorp: The affirmation of Creditcorp's corporate family and senior secured ratings at Caa3 with a developing outlook reflects the company's significant debt refinancing risk, with all of its secured notes in the amount of $162 million maturing in July 2018. The ratings also reflect Creditcorp's currently weak profitability, reflecting revenue decline resulting from branch closures and, to a lesser extent, due to a shift in the portfolio mix towards lower-yielding installment loans. Creditcorp has stronger capitalization relative to its payday lending peers, with tangible common equity representing 9.7% of tangible assets at 30 September 2017. The ratings for Creditcorp could be upgraded if the company successfully refinances or extends the maturity of its debt obligations. The ratings for Creditcorp could be downgraded if the company announces either a distressed exchange or disorderly liquidation as the company approaches its existing debt maturity date.

Community Choice Financial, Inc.'s (CCFI): The affirmation CCFI's Caa3 corporate family and senior secured ratings reflects its high refinancing risk, with most of its senior notes maturing in 2019. The company's profitability and capitalization remains weak. CCFI's still-substantial reliance on payday loans presents a transition risk to the new underwriting-based lending model, given regulatory restrictions. Further, after shrinking its loan portfolio to free up liquidity for debt repurchases, CCFI began to rapidly grow its loan book. Such rapid growth presents a credit risk, especially given the fast expansion of the online portfolio, which has had very high credit losses in the past. The ratings for CCFI could be upgraded if the company refinances or extends the maturity of its obligations. The ratings could also be upgraded if the company improves its financial performance, as evidenced by well-managed asset quality and absence of financial losses. The ratings for CCFI could be downgraded if it announces a distressed exchange or disorderly liquidation as it approaches its existing debt maturity dates.

Sterling Mid-Holdings, Inc. ("Sterling"): The affirmation of Sterling's corporate family rating at Caa3, and the senior secured rating of its subsidiary DFC Finance Corp. ("DFC") at Caa3 reflects the company's weak financial performance, as evidenced by continuing financial losses, negative operating cash flows, high leverage and the resulting weak debt servicing metrics, as well as negative tangible equity.

In November 2017, an affiliate of Lone Star Funds, Sterling's owner concluded a tender offer for its senior secured notes due June 20, which we deemed a distressed exchange. Including the results of tender offer, Lone Star, owns approximately 96% of the outstanding notes.

The ratings for Sterling and DFC could be upgraded if the company improves its capital structure, which we currently view as untenable due to very high leverage, and if it improves its financial performance by achieving positive unadjusted EBITDA, resulting in positive cash flows from operations and strengthened liquidity. The ratings for Sterling and DFC could be downgraded if the company's financial performance deteriorates. For instance, Sterling's Canadian business, which accounts for a substantial portion of its revenues is exposed to local governments that are actively considering imposing restrictions on payday lending, which could further weaken its profitability.

The principal methodology used in these ratings was Finance Companies published in December 2016. Please see the Rating Methodologies 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 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.

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

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 rating analyst and the Moody's legal entity that has issued the ratings.

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
Asst Vice President - 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

Gene Berman
Asst Vice President - Analyst
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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