Feb 15 (IFR) - Springleaf Financial this week priced the first ABS bond that securitizes personal loans in 15 years, reviving a moribund asset class and defying sceptics about the deal's appeal.
The struggling US lender, which is part-owned by bailed-out insurance giant AIG, sold a repackaged chunk of its consumer loans as a US$604.3m asset-backed security (ABS).
The offering attracted strong demand from investors, even though the average credit score of the recipients of the underlying loans was equivalent to a sub-prime credit level.
The success of the trade also defied concerns about the health of Springleaf, which has been fighting to stave off bankruptcy and has major debt obligations on the horizon.
"Most who expressed interest and did not play, did so (only) because they thought the spreads were too low," said one market participant.
Formerly known as American General Finance, Indiana-based Springleaf sold the deal via Citigroup (structuring lead), Bank of America and Credit Suisse.
The deal securitized mostly 2-4 year personal loans with fixed rates of interest between 20% and 36% and an average current balance of about $3500.
It was heavily oversubscribed and drew heavy interest in the lower tranches.
A US$500m Class A tranche, rated single A by S&P with an average life of 2.47 years, priced in line with guidance at interpolated swaps plus 210 basis points (bp).
A US$46.35m tranche with a 3.16-year average life that was rated Triple B printed at the wide end of guidance at interpolated swaps plus 300bp. Initial talk levels were high 200bp-300bp area.
A 3.30-year Double B rated piece was stamped with a yield of 5.5% and coupon of 5%, while a 3.47-year Single B tranche was retained by the issuer.
It took the leads nine days to get the deal done for Springleaf, which is in the midst of a radical restructuring and is facing liquidity concerns.
S&P downgraded Springleaf last year to CCC rated with a negative outlook, citing serious liquidity problems on the horizon.
Since its acquisition by the Fortress Investment Group in November 2010, Springleaf has moved away from originating residential loans and is focusing on its non-real-estate portfolio.
Fortress owns 80% of the company, while AIG owns the rest.
S&P said last year that Springleaf's strategy was "sound but risky", saying that company "increasingly moves toward financing assets that banks either can't or won't fund because of new regulations".
But since the publication of that S&P report, Springleaf has had multiple blow-out RMBS trades, achieving a higher advance rate from the rating agencies, which helped it tackle short-term liquidity issues.
As of September 30, Springleaf had US$1.52bn of cash and equivalents on its balance sheet - well up from US$0.48bn in December 2011.
The company has also refinanced its secured term loan to extend maturities to 2017 from 2015, and increased the size of borrowing to US$3.75bn from US$3bn.
The refinancing resulted in more favorable advance rates and reduced borrowing costs, S&P said in its pre-sale report on the latest deal.
"In our view, the refinancing increases the company's financial flexibility and funding certainty," the ratings agency said.
Even so, Springleaf remains highly leveraged at a 9.6:1 long-term debt-to-equity ratio and has significant debts, with over US$12.6bn in total securitization and long-term debt.
The company says current liquidity is adequate to meet debt obligations through 2013 into 2014, without the need for additional capital markets issuance or reductions in loan originations.
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