S&P Affirms Ratings, Outllok on Springleaf Holdings (LEAF) Amid OneMain Acquisition

Standard & Poor's Ratings Services said that it kept its 'B' counterparty credit and senior unsecured debt ratings on Springleaf Holdings (NYSE: LEAF) on CreditWatch with negative implications. At the same time, we kept our 'B+' counterparty credit and senior unsecured debt ratings on OneMain Financial Holdings Inc. on CreditWatch with negative implications.

"The CreditWatch placements in March followed the announcement that Springleaf will acquire OneMain for $4.25 billion in cash," said Standard & Poor's credit analyst Stephen Lynch.

The acquisition would combine the two largest competitors in the subprime consumer installment lending industry. Pro forma for the merger, we expect Springleaf to have a stronger market position than currently but also substantially higher leverage. Depending on how the company finances the transaction, we most likely will lower our rating on Springleaf by one notch if we expect leverage exceeding 6.5x and by two notches for leverage above 12x. Without additional equity financing, we believe leverage will easily exceed 12x. However, we will also assess how significantly the merger may enhance Springleaf's franchise--which could lessen or mitigate any downgrade.

Our CreditWatch listing with negative implications for Springleaf reflects the uncertainty about how improvements to the company's market position mitigate the higher leverage and integration risk. We could lower the rating by one or two notches depending on the company's leverage, risk, and market position.

Our CreditWatch listing with negative implications for OneMain indicates that we believe there is a substantial chance we will lower our rating as a result of the increase in leverage of the group. If Springleaf fully integrates OneMain, we would likely lower the rating to be equal with the rating on Springleaf. However, OneMain's unsecured debt contains covenants that limit its leverage, implying that Springleaf would have to operate it as a separate entity unless it repaid the debt or renegotiated the covenants. In the event that it remained a separate operating entity with significantly lower leverage than the consolidated company, we could continue to rate it one notch above Springleaf.

The CreditWatch negative listing reflects the possibility that we could lower our issuer credit rating and senior unsecured ratings on Springleaf once the transaction closes. We could lower the ratings by one or two notches depending on how much Springleaf's leverage rises and how we assess the company's new business and risk position.

The CreditWatch negative listing for OneMain reflects the possibility that when Springleaf consummates the acquisition, we will lower our issuer credit rating and senior unsecured ratings on OneMain so they are the same level as our rating on Springleaf. If OneMain were to operate as a subsidiary of Springleaf with its existing covenants, we could affirm the rating or rate OneMain a notch higher than the weaker group credit profile of Springleaf.

We will look to resolve our CreditWatch listings following the close of the acquisition, which we expect in the third quarter of this year.

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