Springleaf Holdings (LEAF) Liquidity to Weaken on OneMain Financial (C) Acquisition

Springleaf Holdings' (NYSE: LEAF) planned acquisition of OneMain Financial Holdings, Inc. from Citigroup (NYSE: C) will significantly increase its leverage and weaken its liquidity, said Moody's Investors Service.

In a new report, Moody's said that although Springleaf's recent $1 billion equity raise lessens the negative impact of the acquisition on the company's leverage, the acquisition will still materially weaken its balance sheet. Moody's expects the transaction will decrease the company's tangible equity from 15 percent to between 4 percent and 5 percent.

"Springleaf's low post-transaction tangible equity relative to tangible assets substantially reduces its capacity to absorb unexpected losses," said Moody's Analyst Anna Sherbakova. "We think it is unlikely that the company will be able to meaningfully de-lever until 2017 given that most of its core earnings will be absorbed by acquisition-related costs."

Springleaf's liquidity will weaken post-acquisition given that the company will finance the transaction with cash. However, in Moody's view, the company will have sufficient liquidity primarily from cash-on-hand, and its and OneMain's secured facilities, to meet its immediate needs over the next year with a modest liquidity buffer for contingencies.

Springleaf's purchase of OneMain, a $4.25 billion, all-cash transaction, will bring together the two leading US branch-based consumer financial companies, each with complementary strategies and locations. On a combined basis, Springleaf and OneMain have approximately 2,000 branches.

Springleaf will benefit from OneMain's larger geographic footprint, covering 43 states, as well as its earnings stream of approximately $0.5 billion, which reflects stronger per-branch profitability and lower overhead than Springleaf. Springleaf expects to close the acquisition in the third quarter of 2015, provided it receives necessary regulatory approvals.

The report, "Springleaf Holdings, Inc.: OneMain Purchase Will Weaken Capital Despite Equity Raise" is available to Moody's subscribers at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1003986

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