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New entrant to subprime auto ABS a well-known market participant


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New entrant to subprime auto ABS a well-known market participant

, a seasonedissuer of notes backed by unsecured consumer loans and so-called "hard secured"auto loans, is venturing into an adjacent asset class with its latest securitization.

The $430.8million OneMain Direct Auto Receivables Trust 2016-1 marks the company's first securitizationof direct-to-consumer auto loans originated as part of a business launched in 2014by predecessor Springleaf Holdings Inc. The company sponsored three consumer loansecuritizations during the first half of 2016 on its OneMain Financial IssuanceTrust platform worth $1.74 billion in the aggregate.

OneMainHoldings, formerly known as Springleaf Holdings, acquired the former OneMain Financial Holdings Inc. on Nov.15, 2015. Approximately one year prior, Springleaf Holdings in 2014 hired RobertHurzeler, a longtime veteran of the direct auto finance business at , to build and runthe new platform.

"Theauto finance market is about $800 billion outstandings with about 30% of that innonprime customers," Jay Levine, then Springleaf CEO and now OneMain presidentand CEO, said during an August 2014 conferencecall. "This presents us with a huge new opportunity."

Therehave been no shortage of concerns raised in the subprime market about the prospectsfor excessive supply of lending capacity chasing limited consumer demand, but thecompany's approach to the business differs from many of its competitors — includingthose companies that engage most frequently in securitization. Its direct lendingbusiness principally focuses on refinance and cash-out refinance loans instead ofpurchase loans, and the direct nature of the business means that it is not reliantupon forging relationships with auto dealers. Originations are conducted throughlegacy Springleaf branches, but underwritten through centralized facilities.

Relativeto the "hard secured" loans that legacy Springleaf has produced in theauto finance business and included in consumer securitization pools under the Springleafand OneMain names, the direct originations focus on larger loans on newer vehicles.The average size of the direct auto loans of $14,930 in the first quarter was morethan double the average loan size of $6,662 for the hard-secured product, accordingto a June investor presentation.The direct loans had a longer original term at 54 months versus 46 months for thehard-secured product. The interest rate associated with the direct loans was considerablylower at an average of 17.8% versus 26.9%.

Directand "hard secured" auto loans accounted for 18.2% and 38.4% of legacySpringleaf's first-quarter originations, respectively, according to the presentation.Originations of the core unsecured personal loan product represented 43.4% of thecompany's overall production.

In recent-vintageOneMain Financial Issuance Trust securitizations, according to a review of ratingagency reports, the "hard secured" auto loans have generally accountedfor mid-teens percentages of the collateral pools.

S&PGlobal Ratings said in a presale report that it issued a preliminary rating of A+(sf) to the $344.6 million in class A notes, which would be due in January 2021.It assigned preliminary ratings of BBB+ (sf) to the $26.1 million in class B notesand BB (sf) to the $29.3 million in class C notes. The $30.8 million in class Dnotes were not rated by S&P Global Ratings, but they received preliminary ratingsof BB (sf) from DBRS and Kroll Bond Rating Agency.

S&PGlobal Ratings and S&P Global Market Intelligence are owned by S&P GlobalInc.

The $429.4million OneMain Direct Auto Receivables Trust 2016-1 pool includes nearly 36,000loans with a weighted-average annual percentage rate of 17.4%, a weighted-averageoriginal term of 52.5 months and a weighted-average borrower FICO score of 609,S&P Global Ratings said.

Indirectlyoriginated loans account for a majority, if not the entirety, of most of the nonprimeauto ABS pools. OneMain's June slide deck showed among the comparable deals to OneMainDirect Auto Receivables Trust 2016-1 transactions sponsored by and WestlakeFinancial Services that were backed by nothing but indirect loans as well as securitizationsby Consumer Portfolio Services Inc.,Flagship Credit Acceptance LLC, FirstInvestors Financial Services Group and the unit of Flagshipwhere indirect loans accounted for between 71.9% and 99.5% of the various pools.

"[G]ivenOneMain's refinancing focus and 100.0% direct originations, there is no true autoloan ABS issuer comparable," S&P Global Ratings said.

But investorsmay have an opportunity to become much more familiar with loans of the sort. OneMainsaid in the June presentation that it intends to become a routine issuer of directauto-only ABS.