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COMMENTS

U.S. Finance Companies Are Largely Steady As She Goes Amid Rising Economic Uncertainties


U.S. Finance Companies Are Largely Steady As She Goes Amid Rising Economic Uncertainties

Last month, the U.S. officially reached 121 months of economic growth, making it the longest economic expansion in U.S. history. The milestone, however, did not receive much fanfare. Instead, the Federal Open Markets Committee (FOMC) decided to cut its policy rate by 25 basis points (bps), the first cut since 2008, in what may be a tell-tale sign of an economy showing some signs of exhaustion.

Although the underlying economy continues to provide supportive conditions for the U.S. finance companies that we rate, the inevitable peak of the market is slowly becoming visible, in our opinion. S&P Global economists expect GDP to slow to 2.5% in 2019 and 1.8% in 2020, from 2.9% in 2018. This weaker growth momentum just as the economy is going through worsening trade cross currents, heightened geopolitical risk, and increased market turbulence led S&P Global economists to increase the overall odds of a recession (12 months out) to 25%-30%, up from our assessment of 20%-25% in May.

We have stable outlooks on 49 (76%) of the nonbank finance companies we rate. (We classify finance companies as either nonbank finance companies or financial service finance companies. The former have more significant balance-sheet risk while the latter depend more on cash flows.) We have positive outlooks on six (9%) companies and negative outlooks on 10 (15%) companies. Two companies are in default, which carry no outlook. Four of our negative outlooks and both of our defaults were in the residential mortgage sector.

Chart 1

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Chart 2

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Residential Mortgage: Refi Bonanza Masks Wounds For Originators And Cuts Deep For Servicers

Falling interest rates and the possibility of the Fed cutting rates were certainly not our base-case expectation for the mortgage sector at the beginning of the year. Yet here we are. We now expect strong year-over-year earnings from mortgage lenders in 2019, which is a welcome reprieve from a challenging 2018. The surge in demand, following data that lenders were trimming headcount, should also provide some support to gain-on-sale margins, which have been under pressure. Longer term, however, we still have a cautious view of the market because of intense competition, earnings volatility, and dependence on wholesale financing.

Chart 3

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The current 30-year mortgage rate sits at 3.75%, down from 4.5% at the beginning of the year, which ignited a wave of refinance activity. The Mortgage Bankers Association (MBA) expects the total tally for second-quarter originations to hit $501 billion, which, if confirmed, would be the highest since the fourth quarter of 2016. For the full year, the MBA now expects total volume to grow to $1.79 trillion (30% refinance/70% purchase), an 8.76% increase year over year. The forecast was revised from $1.62 trillion (24% refinance/76% purchase) at the start of the year.

Chart 4

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The Consumer Financial Protection Bureau's (CFPB) announcement that it plans to let the "qualified mortgage patch" expire in January 2021 as originally planned creates further structural headwinds for the industry. The patch allows Fannie Mae and Freddie Mac to purchase loans where the borrower's debt-to-income (DTI) ratio exceeds 43% if other factors were considered. A report published by the Center for Responsible Lending estimated that the government-sponsored entities (GSEs) purchased 3.3 million mortgages between 2014 and 2018, which is 19% of the total approved volume. There could be some pushback on allowing the patch to expire, however, since the policy mostly affects low-income Americans, especially minority communities.

The flip side to falling rates are very large--and often unhedged--losses on mortgage servicing rights. Although we expect the pain from the write-downs will effect anyone who holds MSRs, it will be the most acute for those that don't have large origination platforms. We believe the worst of the write-downs should be over since downward valuation adjustments should slow the further current interest rates move away from the weighted average coupon on a MSR portfolio. Mr. Cooper, the largest nonbank mortgage servicer, saw its net MSR position decline to $2.04 billion at the end of the second quarter from $2.41 billion at the start of the year. This caused debt to tangible equity to rise to over 2x and supported our decision to revise the outlook to negative from stable.

We've taken several negative rating actions in the first half of this year. Most notably, the ratings on DiTech and Stearns were lowered to 'D' (Default) as the struggling mortgage companies filed for bankruptcy. This is DiTech's second bankruptcy in the last two years. The company is looking to eliminate $800 million in corporate debt. The Stearns bankruptcy is noteworthy because it pits Stearns' sponsor The Blackstone Group against PIMCO, two of the world's largest asset managers. Stearns has $183 million in senior secured debt due in August 2020 that it is looking to restructure.

We also lowered our rating on Provident Funding to 'B-' with a stable outlook and revised our outlooks on PennyMac Financial and Quicken Loans to negative from stable. The March rating action on Provident was based on our expectation that debt to EBITDA will remain above 11x in 2019 with debt to tangible equity around 2x. The rating action on PennyMac, also in March, was based in part on leverage rising to 4.2x at the end of 2018 from 2.56x in 2017. The negative outlook on Quicken Loans was driven by adjusted EBITDA declining 46% year over year in 2018, which caused debt to EBITDA to surge to over 3.0x from 1.5x in 2017. Quicken recently announced that it funded $32 billion of mortgages in the second quarter, the largest amount in the company's history. We expect both PennyMac and Quicken will maintain debt to tangible equity around or below 1.0x.

Economic Growth Should Stave Off Major Losses In Leveraged Lending In 2019, But Continued Lax Underwriting Carries Significant Risks

The rapid growth of the U.S. leveraged loan market to over $1.0 trillion from about $600 billion in 2008 has come under scrutiny from regulators and lawmakers due to concerns that weaker underwriting could pose a threat to the broader financial system. The loans continue to be primarily covenant lite, and EBITDA add-backs have become prevalent.

Chart 5

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The lagging 12-month default rate of the S&P/LSTA Leveraged Loan Index was 1.32% in July, well below the historical average of 2.9%. We expect default rates to remain manageable as long as the economy continues to grow, particularly because there is no imminent refinancing risk and limited covenants that could be violated. Covenant-lite loans make up over 75% of the outstanding U.S. loans. A downturn in the U.S. economy would likely lead to a significant rise in defaults given the elevated debt borrowers have taken on. However, absent an economic downturn, there is less likelihood for a wide-scale borrower distress until at least 2023, when about $200 billion of leveraged loans mature. That number ramps up to over $300 billion in 2024 and about $350 billion in 2025.

Chart 6

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Leveraged loan volume declined by almost 50% to $108 billion in the second quarter of 2019 compared with $200 billion the same time last year--the lightest quarterly issuance since first-quarter 2016 (see chart 7). Issuance of high-yield bonds has increased, offsetting some of the decline in leveraged loans. After the crisis, the collateralized loan obligations (CLO) market in the U.S. approached about $650 billion, with over $100 billion issued the past few years.

Chart 7

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The market gyrations in the fourth quarter of 2018 spilled into the leveraged loan markets as the spreads widened to about L+500 from below L+350 earlier in 2018. In 2019, the spreads tightened from L+500 to roughly L+400 but remain above 2018 levels.

Chart 8

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As for investor sentiment, we continue to see retail cash outflows to be a drag on the market. Since the fourth quarter of 2018, leveraged loans have seen over $30 billion in withdrawals according to Lipper and LCD as the demand for floating-rate loans declined as the possibility of another rate cut from the Federal Reserve has increased.

Chart 9

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For the remainder of 2019, we expect underwriting standards to remain fairly relaxed on leveraged loans and institutional investors via CLOs to continue to be the key buyers. It is possible that retail investors will continue to incrementally withdraw from leveraged loan funds, but a reduction in rates by the Fed could spur greater risk taking again.

Business development companies (BDCs) are directly exposed to rising risks in leveraged lending but generally have been able to require financial covenants. With the Fed reducing the rate by 25 bps and the anticipation of future rate cuts, we believe credit issues with the portfolio companies may be likely delayed as well. Given the competitive space, some BDCs are assuming a strategy to get bigger, allowing them to offer one-stop solutions to larger companies that smaller BDCs cannot offer. In 2019, FS/KKR Advisor LLC announced its plan to merge four nontraded BDCs, which will create the second-largest BDC with over $9 billion in assets and will be publicly traded later this year. So far this year, several BDCs raised debt capital, including issuances by Ares Capital, FS KKR, and Owl Rock. Also, Owl Rock tapped the equity markets with its IPO.

Our ratings on BDCs have remained stable this year as we downgraded many last year following the adoption of a modified asset coverage ratio. However, we revised our outlook on Ares Capital Corp., which we downgraded last year, to positive, reflecting its sustained strong operating results and further strengthening of its funding profile and financial flexibility.

Vehicle Finance: Delinquencies Are Rising Modestly In Subprime

Growth in auto loan originations peaked in 2015, at a time when we believe competition was particularly intense, leading to relaxed underwriting standards. Since then, delinquencies headed higher before moderating during 2018. Auto loan delinquencies of more than 90 days increased 43 bps in the first quarter of 2019 compared with the same period in 2018, per data released by the Federal Reserve Bank of New York. With 4.69% of loans 90+ days delinquent, auto loans have not risen past this level since they reached 4.92% in the fourth quarter of 2009, when economic conditions were much worse. However, we believe this data tends to overstate delinquencies because the Federal Reserve includes "severely delinquent," or charged-off loans, in both the numerator and denominator when reporting delinquency.

Chart 10

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Looking at asset-backed securitization (ABS) data, which only includes auto loans in ABS deals we rate, auto loan delinquencies of more than 60 days increased 22 bps to 4.51% for subprime as of May 2019, compared with the same period in 2018. We believe delinquencies were driven higher primarily due to the combination of loosening credit standards and origination growth that occurred in 2015 and 2016 vintage loans that are now seasoned. Also, delinquency levels may be affected by changes in collection practices by some lenders that aim to reduce or delay repossessions and charge-offs. Net charge-offs for auto loans as reported by the Federal Deposit Insurance Corp. rose from 2015 to a peak of 1.00% in the fourth quarter of 2017 but have declined on a year-over-year basis to 0.81% in the first quarter 2019 from 0.92% in same period of the prior year.

Table 1

60-Plus-Day Delinquency Rates
(%) May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-19
Prime 0.5 0.39 0.31 0.35 0.37 0.39 0.42 0.37 0.36
Subprime 2.25 2.49 2.82 3.48 3.89 4.1 4.5 4.29 4.51
Subprime modified - 2.47 2.69 3.16 3.35 3.22 3.24 3.07 3.19

Chart 11

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Following the rapid growth in 2015, lenders pulled back on subprime originations as credit conditions worsened despite lower unemployment. Growth since 2016 had slowed, particularly relative to growth in loans to customers with a FICO score above 660. However, growth in subprime originations started to come back in the third quarter of 2018. Growth in subprime auto loans year over year has now outpaced growth in loans to customers with FICOs above 660 for two of the past three quarters. This could signal a return to loosening credit standards, particularly in an environment where used car prices have been stable to increasing.

Chart 12

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Stable credit trends are somewhat reflected in the FICO distribution of auto loan originations that show FICOs for auto originations have been steady to modestly declining while still at higher levels than during 2015. The median FICO of loans originated was 708, as of first-quarter 2019, up from 695 three years ago. This is still high on a relative basis compared to below 700 during all four quarters of 2015. Similarly, 25th percentile and 10th percentile FICO scores are also higher from three years ago but down from a year ago, according to the Federal Reserve Bank of New York, which still demonstrates tightening lending standards compared to three years ago, though with trends possibly beginning to stabilize.

Chart 13

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We see the greatest risks in leases and nonprime, particularly deep subprime. However, companies we cover have generally tightened standards since 2015, residual values have held up better than expected, and rates are more likely to decline. Trends toward longer-loan terms combined with deteriorating credit quality could pose risks, particularly if the expectation for declines in used car prices finally materialize. Seasonally adjusted car sales peaked in 2016 and are on pace for declines. S&P Global Ratings expects that used-vehicle prices will likely decline by 2%-3% in 2019, though they have held up relatively well in the past year. Used car prices were up 1.7% as of April 2019 compared to the same period last year, according to the seasonally adjusted JD Power Valuation Services Used Vehicle Price Index.

Chart 14

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We believe that underwriting standards have now tightened for most of the companies we cover, particularly for subprime loans, as lenders adjusted their risk appetites in the face of increasing delinquencies. Through a recession, we would be vigilant of a company's ability to retain access to bank funding for warehouse lines as credit quality deteriorates, as well as its ability to continue to issue debt in the ABS market. Importantly, all of the companies we rate were able to continue to tap the ABS market with no impact on the availability of bank-provided warehouse funding as credit quality deteriorated for 2015 and 2016 vintages.

Auto loans have been the second-fastest-growing consumer segment since the end of 2010 after student loans, increasing at a 7.4% annual rate over that period. Total consumer auto loan debt increased by $570 billion, compared with growth of $1.95 trillion across all consumer debt, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit from May 2019.

Commercial Real Estate Lending: Continued Stable Environment Spurs Active Debt Issuance Thus Far In 2019

For the commercial real estate (CRE) finance companies we rate, losses continue to be minimal as CRE fundamentals remain solid. Amid a stable economic backdrop and a competitive environment among CRE lenders, CRE companies we rate have largely been focusing on refinancing their capital structures to be better prepared for a potential downturn. Most of the refinancings have been focused on diversifying the companies' funding profiles away from secured repurchase facilities, which we view positively given that these facilities have the potential for margin calls in a stress scenario, something we view as one of the key risks to the subsector. The recent interest rate cut by the Federal Reserve should help support property values, and we expect demand for real estate to remain steady, supported by low unemployment, wage growth, and consumer demand in the U.S., though concerns for global economic slowdown could temper growth in 2020.

Year-to-date 2019, we have assigned new ratings to three CRE finance companies, Apollo Commercial Real Estate (ARI), Blackstone Mortgage Trust (BXMT), and Claros Mortgage Trust. All three companies are almost entirely focused on transitional loans, with a substantial portion of their funding profiles consisting of secured repurchase facilities. This year ARI issued a seven-year $500 million senior secured term loan at Libor plus 2.75%, while BXMT issued a seven-year senior secured term loan at Libor plus 2.50%. ARI and BXMT raised slightly over $300 million of equity in the period as well, signifying the strong access to capital markets that the CRE firms currently enjoy.

We expect that, with continued stable CRE fundamentals, CRE finance companies will continue to issue secured and unsecured debt offerings as they diversify their capital structures. We expect issuers to also continue increasing their use of CLOs as another way to diversify capital structures. The CLO nonrecourse structure, in our view, is more stable than secured repurchase facilities because they do not have margin call features. We view positively the general shift away from secured repurchase facilities, while companies, such as Starwood Property Trust, have significantly focused on increasing unsecured issuances in recent years.

Capitalization rates continue to decline nationwide for multifamily properties, as the cap rate has reached a 10-year low of 5.4% as of March 31, 2019. Office cap rates have remained mostly stable over the last five years, fluctuating between 6.9%-7.3%, ending the period at 7.1%. While there have been general concerns regarding the retail sector, cap rates reached a seven-year high at 8.0% at year-end 2018; however, they have slightly fallen in the first quarter of 2019 to 7.8%.

Chart 15

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Vacancies have been largely stable in recent years, providing general support to the sector's credit quality and valuations, although they are slightly higher than lows in 2016. While office vacancies remain slightly elevated relative to pre-2009, they have slightly declined over the last 10 years, coming in at 16.6% as of March 31, 2019, although still slightly above the low of 16.3% at year-end 2016. Coinciding with the general trend in multifamily cap rates, vacancies have been consistently below pre-2009 levels. However, they have recently increased to 4.8% in March 31, 2019, up from a low of 4.1% in September of 2016. Following the general trend, retail vacancies are below their 10-year high, coming in at 10.2% as of March 31, 2019--slightly above the low of 9.8% in 2016.

Chart 16

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Commercial Real Estate Services: Steady Momentum Is Likely In 2019

We entered 2019 expecting rising interest rates and increased capital market volatility--two factors that investors feared could derail momentum in the CRE services space. On the contrary, we continue to see Treasury rates rallying and S&P Global economists now expect the Fed to cut the rate by 25 bps one additional time in 2019. We expect cap rates to remain relatively unchanged despite interest rates rallying.

For 2019, CRE servicing companies expect fundamentals to remain resilient due to significant capital availability and low interest rates. We continue to see positive sentiment around shared workspace, and in 2019, CBRE launched Hana, a flexible shared workspace for owners and occupiers. CBRE expects a shift in occupier needs and that, by 2028, flexible spaces will be about 220 million to 440 million square feet, compared with 35 million in 2018. S&P Global Ratings assigned its 'B' rating to WeWork Inc. in April of this year.

The majority of the CRE services firms that we rate have a stable outlook because of our favorable view of the sector, with only two having negative outlooks due to idiosyncratic risks.

Our negative outlook on Jones Lang LaSalle (JLL) follows its announcement that it will acquire HFF Inc., a provider of capital markets and brokerage services, and our expectation that leverage will rise over 2.0x. Notwithstanding the rise in leverage and the potential for integration risks, we believe the acquisition will allow JLL to expand its capital markets business, a segment we consider to be volatile but to have high margins. The negative outlook on Greystar Real Estate Partners LLC is due to an increased debt burden and an expected decline in operating performance in 2019 as the company plans to grow internationally and increase its development projects.

On a broader scale, we see many common trends in the CRE services firms we rate, such as:

  • Leverage remains within our threshold due to stable operating results. Many higher rated companies have targets to keep their net debt to EBITDA below 2.0x, a level we view favorably since some revenue streams are more sensitive to economic cycles.
  • Across the board, CRE services companies are reporting strong performance in their leasing segments, typically the largest revenue segment for CRE services companies, as the industry has plenty of space to grow. Low unemployment also supports leasing. The top three global CRE servicers generated about a third of their fee revenues from leasing (see chart 17).

Chart 17

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We expect CRE services companies to continue to pursue acquisitions, which creates the possibility of incremental leverage and execution risk. Nevertheless, we expect CRE services to be better-positioned compared with the 2008 recession, as they have transitioned to more contractual fee revenue sources relative to more volatile capital market revenues and continue to maintain adequate liquidity, should the cycle turn.

Payday Lending: State Regulations Continue To Impose A Challenge In Light Of Reduced Federal Oversight

Midway through 2019, our expectation of tailwinds for better-positioned payday companies due to lighter federal regulations and no refinancing risk remains on track. At the federal level, small-dollar lenders gained significant momentum, as the CFPB not only issued a final rule that extends the effective compliance deadline to November 2020 from August 2019 but also is now considering annulling key rules. Notwithstanding these tailwinds, we have seen state regulators step up, and we expect that to continue going forward. We remain cautious that new state laws geared toward limiting high-cost installment and high-cost short-term lending could hinder the operating performance for small-dollar lenders.

The California legislature remains on track to implement Assembly Bill (AB) 539, which caps rate on a larger consumer installment loans. The bill sets an annual percentage rate (APR) of 36% plus the Fed Funds Rate on all consumer-purpose installment loans, including personal loans, car loans, and auto title loans, as well as open-end lines of credit, where the amount of loan is $2,500 to $9,999. The California Financing Law (CFL) already caps the rates on consumer purpose loans of less than $2,500. Consequently, we expect small-dollar lenders will significantly curtail offering such products, and for those that continue to offer them, compliance costs will rise. If implemented, the bill would be effective January 2020 and would apply only to loans originated on and after the effective date. The bill states different terms based on the loan amount.

Of the payday companies we rate, CNG Holdings and Curo Group would be most affected because they generate over 15% of revenues from installment lending in California. Absent any reform, we expect operating performance to weaken starting 2020 as the companies transition their customers to alternative products, which abide by California state law.

The Arizona Fair Lending Act would cap interest at 36%, prohibit balloon payments, and restrict other practices, but it would continue to allow title loans. The act seeks to gather more than 237,000 signatures by early July 2020 to qualify the measure for the ballot in November 2020. If the law is implemented, we expect TMX Finance to be the most affected because it has about 80 stores in Arizona, which comprise 6%-7% of its combined loan receivables. In late 2018, the Ohio legislature implemented House Bill 123, which is applicable to loans made after April 26, 2019, and limits permissible fees and charges on short-term loans and eliminates the Credit Services Organization (CSO) model. And in Colorado, voters passed Proposition 111, a ballot measure that will cap the annual interest rate on payday loans at 36% and eliminate all other finance charges and fees, effective February 2019.

Eighteen states and the District of Columbia prohibit extremely high-cost payday lending, and three states permit lower-cost payday lending. We factor regulatory uncertainties into our assessment of a lender's business position, which caps the overall business position for payday companies at our lowest level.

Notwithstanding regulatory uncertainties, the payday companies we rate gained positive rating traction primarily due to improved operating performance and no imminent refinancing risk until at least 2021. We revised our outlook to positive from negative on TMX Finance LLC, upgraded Populus (f/k/a ACE Cash Express) and CNG Holdings to 'B' from 'B-' and 'CCC+', respectively, and maintained our positive outlook on Curo Group Holdings Inc.

Chart 18

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For the first half of 2019, the capital markets were open to payday companies for the right price. CNG Holdings Inc. issued $310 million 12.5% senior secured notes due 2024 and used the proceeds to pay down its existing $326 million senior secured notes due 2020. Populus entered into a definitive agreement to acquire Amscot Financial Inc., a consumer lender in Florida, for $241 million, or about 5.1x EBITDA. To fund this acquisition, Populus announced a tender offer for its senior secured notes due 2022.

Overall, we remain cautious about ongoing product transitions to what's suitable for different state legislatures, and we expect companies to have increased compliance costs, higher charge-offs, and an increase in loan loss provisions. Because of this, our ratings remain concentrated in the 'B' and 'CCC' categories.

Finance Company Ratings Reflect A Reasonable Degree of Stress

S&P Global Ratings expects the credit quality, funding, and earnings prospects of most of the finance companies we rate to hold firm for the remainder of 2019 and into early 2020 when our economists expect GDP to slow and unemployment to gradually rise. We also believe lower interest rates provide some tailwinds into an extended economic expansion facing greater global uncertainty. However, volatile financial markets could affect finance companies we rate negatively, principally by decreasing credit quality and access to capital markets, possibly leading to downgrades. Upgrades are less likely, given where we are in the economic cycle and the low likelihood of improving credit quality in most finance company sectors.

Appendix

Table 2

FSFC Rating Factor Assessments
As of July 29, 2019
Company Business risk profile Financial risk profile Anchor Capital structure Financial policy Liquidity Mgmt. & governance Peer Adjustment SACP ICR Outlook
Commercial real estate services

Avison Young (Canada) Inc.

Fair Highly leveraged b Neutral Neutral Adequate Fair Unfavorable b- B- Stable

CBRE Services Inc.

Satisfactory Modest bbb+ Neutral Neutral Exceptional Satisfactory Neutral bbb+ BBB+ Stable

Cushman & Wakefield

Fair Aggressive bb- Neutral FS-5 Adequate Fair Neutral bb- BB- Stable

Greystar Real Estate Partners LLC

Fair Aggressive bb- Neutral Negative Adequate Satisfactory Favorable bb- BB- Negative

Hunt Cos.

Fair Aggressive bb- Neutral Neutral Adequate Fair Neutral bb- BB- Stable

Jones Lang LaSalle Inc.

Satisfactory Modest bbb+ Neutral Neutral Exceptional Satisfactory Neutral bbb+ BBB+ Negative

Newmark Group Inc.

Fair Modest bbb- Neutral Neutral Strong Fair Unfavorable bb+ BB+ Stable

Walker & Dunlop Inc.

Fair Minimal bbb- Negative Neutral Strong Satisfactory Unfavorable bb BB Stable
Fleet leasing

Enterprise Fleet Management Inc.

Satisfactory Modest bbb+ Neutral Neutral Adequate Satisfactory Neutral bbb+ BBB+ Stable

Wheels Inc.

Strong Intermediate a- Neutral Neutral Adequate Satisfactory Favorable a A Negative
Residential mortgage

Altisource Portfolio Solutions S.A.

Vulnerable Significant b+ Neutral Neutral Adequate Weak Neutral b B Stable

DiTech Holding Corp.

Weak Highly leveraged b- Negative Negative Less than adequate Weak Neutral d D

Freedom Mortgage Corp.

Weak Highly leveraged b Negative Neutral Adequate Fair Negative b- B- Stable

Mr. Cooper Group Inc.

Weak Highly leveraged b Negative Neutral Adequate Fair Favorable b B Negative

Ocwen Financial Corp.

Vulnerable Highly leveraged b- Negative Neutral Adequate Weak Neutral b- B- Negative

PennyMac Financial Services Inc.

Weak Significant bb- Negative Neutral Adequate Fair Neutral b+ B+ Negative

Provident Funding Associates L.P.

Weak Highly leveraged b Negative Neutral Adequate Fair Neutral b- B- Negative

Quicken Loans Inc.

Fair Intermediate bb+ Negative Neutral Strong Fair Neutral bb BB Negative

Stearns Holdings LLC

Weak Highly leveraged b- Negative FS-6 Less than adequate Fair Neutral d D
Consumer lending and payday

CCF Holdings LLC

Vulnerable Highly leveraged b- Neutral Neutral Less than adequate Fair Neutral ccc+ CCC+ Negative

CNG Holdings Inc.

Vulnerable Significant b+ Neutral Neutral Less than adequate Fair Unfavorable b B Stable

Curo Group Holdings Corp.

Vulnerable Significant b+ Neutral Negative Adequate Fair Unfavorable b- B- Positive

Enova International Inc.

Vulnerable Significant b+ Neutral Neutral Adequate Fair Unfavorable b B Stable

FirstCash Inc.

Weak Intermediate bb Neutral Neutral Strong Satisfactory Neutral bb BB Stable

Populus Financial Group Inc.

Vulnerable Highly leveraged b- Neutral FS-6 Less than adequate Fair Favorable b B Stable

TMX Finance LLC

Vulnerable Aggressive b Neutral Neutral Less than adequate Fair Unfavorable b- B- Positive
Specialty finance

Nelnet Inc.

Fair Minimal bbb Negative Neutral Strong Fair Neutral bbb- BBB- Stable

Blucora Inc.

Fair Intermediate bb+ Neutral Neutral Adequate Fair Unfavorable bb BB Stable

Greenhill & Co. Inc.

Fair Intermediate bb+ Neutral Neutral Adequate Fair Unfavorable bb BB Stable
Money/Payment services

Euronet Worldwide Inc.

Satisfactory Intermediate bbb- Neutral Neutral Strong Fair Neutral bbb- BBB- Positive

FLEETCOR Technologies Inc.

Satisfactory Intermediate bbb- Neutral Negative Adequate Fair Neutral bb+ BB+ Positive

MoneyGram International Inc.

Fair Highly leveraged b Neutral FS-6 Adequate Fair Neutral b B Stable

The Western Union Co.

Satisfactory Intermediate bbb Neutral Neutral Exceptional Fair Neutral bbb BBB Stable

WEX Inc.

Satisfactory Aggressive bb Neutral Neutral Adequate Fair Unfavorable bb- BB- Stable

Table 3

NBFI Finco Rating Factor Assessments
As of July 31, 2019
Company Anchor Entity-specific adjustment Final anchor Business position Capital, leverage, and earnings Risk position Funding/Liquidity Comparable Ratings Adjustment SACP Group support/ GRE support ICR Outlook
Auto lending

Ally Financial Inc.

bb+ 2 bbb Moderate Strong Moderate Adequate/Adequate 0 bbb- -1 BB+ Positive

Credit Acceptance Corp.

bb+ 0 bb+ Moderate Strong Moderate Adequate/Adequate 0 bb 0 BB Stable

DriveTime Automotive Group Inc.

bb+ 0 bb+ Moderate Adequate Very Weak Moderate/Adequate 0 b- 0 B- Stable
Commercial lending

Jefferies Finance LLC

bb+ 0 bb+ Moderate Adequate Weak Adequate/Adequate 0 b+ 1 BB- Stable

KKR Financial Holdings LLC

bb+ 0 bb+ Adequate Very strong Weak Adequate/Adequate +1 bbb- 1 BBB Stable

National Rural Utilities Cooperative Finance Corp.

bb+ 1 bbb- Very strong Adequate Strong Adequate/Adequate +1 a 0 A Stable

Oxford Finance LLC

bb+ 0 bb+ Moderate Strong Moderate Moderate/Adequate 0 bb- 0 BB- Stable
Commercial real estate

Apollo Commercial Real Estate Finance Inc.

bb+ 0 bb+ Moderate Very Strong Moderate Moderate/Moderate 0 bb- 0 BB- Stable

Blackstone Mortgage Trust Inc.

bb+ 0 bb+ Moderate Adequate Moderate Moderate/Adequate +1 bb- 0 BB- Stable

Claros Mortgage Trust Inc.

bb+ 0 bb+ Moderate Strong Moderate Moderate/Adequate 0 bb- 0 BB- Stable

iStar Inc.

bb+ 0 bb+ Moderate Moderate Moderate Adequate/Adequate +1 bb- 0 BB- Stable

Ladder Capital Finance Holdings LLLP

bb+ 0 bb+ Moderate Adequate Adequate Adequate/Adequate 0 bb 0 BB Stable

LoanCore Capital Markets LLC

bb+ 0 bb+ Weak Adequate Moderate Moderate/Adequate +1 b+ 0 B+ Stable

Starwood Property Trust Inc.

bb+ 0 bb+ Moderate Strong Moderate Adequate/Adequate 0 bb 0 BB Stable
Consumer finance

Fairstone Financial Inc.

bbb- 0 bbb- Moderate Moderate Moderate Moderate/Adequate 0 b+ 0 B+ Stable

goeasy Ltd.

bbb- 0 bbb- Moderate Strong Weak Moderate/Adequate 0 bb- 0 BB- Stable

Navient Corp.

bb+ 0 bb+ Moderate Adequate Moderate Adequate/Adequate 0 bb- 0 BB- Stable

OneMain Holdings, Inc.

bb+ 0 bb+ Adequate Moderate Moderate Adequate/Adequate 0 bb- 0 BB- Stable

World Acceptance Corporation

bb+ 0 bb+ Moderate Very strong Weak Moderate/Adequate -1 b+ 0 B+ Stable
Other

Hannon Armstrong Sustainable Infrastructure Capital Inc.

bb+ 0 bb+ Moderate Strong Adequate Adequate/Adequate 0 bb+ 0 BB+ Stable

Massachusetts Development Finance Agency

bb+ 1 bbb- Strong Very strong Adequate Strong/Strong 0 a 1 A+ Stable
Note: NBFI Fincos are covered under the “Nonbank Financial Institutions Rating Methodology.” Does not include captive finance firms.

Table 4

Business Development Companies Rating Factor Assessments
As of Aug. 5, 2019
Company Final anchor Business position Capital, leverage, and earnings Risk position Funding and liquidity Comparable ratings adj. ICR

Ares Capital Corp.

bb+ Adequate Very Strong Moderate Adequate/Adequate Neutral BBB-/Positive/--

BlackRock TCP Capital Corp.

bb+ Adequate Very Strong Moderate Adequate/Adequate Neutral BBB-/Negative/--

Main Street Capital Corp.

bbb- Adequate Very Strong Moderate Adequate/Adequate Neutral BBB/Stable/--

Prospect Capital Corp.

bbb- Adequate Strong Moderate Adequate/Adequate Neutral BBB-/Stable/--

TPG Specialty Lending Inc.

bb+ Adequate Very Strong Moderate Adequate/Adequate Neutral BBB-/Stable/--

FS Energy and Power Fund

bbb- Moderate Very Strong Very Weak Moderate/Adequate Neutral BB-/Stable/--

Owl Rock Capital Corp.

bbb- Adequate Very Strong Moderate Moderate/Adequate Neutral BBB-/Stable/--

Table 5

FSFC Descriptions
Company Company description
Altisource Portfolio Solutions S.A. Altisource is a real estate and mortgage asset management and service provider.
Avison Young (Canada) Inc. Avison Young provides commercial real estate services for office, retail, industrial, and multifamily properties. The company offers transaction management, tenant/landlord representation, consulting and advisory and facility management. 
Blucora Inc. Blucora operates two segments. Wealth management offers brokerage and investment advisory. Tax preparation offers digital do-it-yourself tax preparation solutions.
CBRE Services Inc. CBRE is commercial real estate services and investment company that strategic advice and execution to owners, investors, and occupiers of real estate in connection with leasing, integrated property sales, and mortgage and structured financing services.
CCF Holdings LLC. Community Choice offers short-term payday and medium-term consumer loans, check cashing, prepaid debit cards, money transfers, bill payments, money orders, and other ancillary retail financial services. As of Sept. 30, 2017, it owned and operated 502 stores in 12 states.
CNG Holdings Inc. CNG offers payday loans, installment loans, check cashing, money transfers, automobile title loans, pawn-broking, and other financial products and services. 
Curo Group Holdings Corp. Curo Holdings, which operates as Speedy Cash, offers payday, title, and installment loans; personal line of credit, cash for gold, pre-paid cards, money orders, and money transfers, as well as check-cashing services.
Cushman & Wakefield Inc. Cushman & Wakefield Inc. provides real estate services for owners, tenants, and investors. It offers agency leasing and brokerage services for clients across various commercial property types with specialists in office, retail, hospitality, industrial, and logistics. 
Ditech Holdings Corp. Ditech Holdings (f/k/a Walter Investment Management) is a servicer and originator of mortgage loans and a servicer of reverse mortgage loans. It operates through three segments: Servicing, Originations, and Reverse Mortgage, although the company is exploring exiting the Reverse segment. 
Enova International Inc. Entirely online, Enova provides payday consumer loans, installment loans, and consumer lines of credit.
Enterprise Fleet Management Inc. Enterprise Fleet Management provides fleet management services for businesses with midsize fleets in the U.S. The company assists businesses in disposing and replacing vehicles, as well as provides reporting on fleet operations. 
Euronet Worldwide Inc. Euronet Worldwide Inc. provides payment and transaction processing and distribution solutions to financial institutions, retailers, service providers, and individual consumers worldwide. The company operates in three segments: Electronic Financial Transaction (EFT) Processing, epay, and Money Transfer. 
FirstCash Inc. FirstCash operates retail-based pawn and consumer finance stores in the U.S. and Mexico. Its pawn stores lend money on the collateral of pledged personal property.
FleetCor Technologies Inc. FleetCor Technologies is a commercial payment solutions provider. The company’s payment products, networks and services provide specialized charge cards for specific spending categories. The company’s revenues can be divided into six payment solutions based products: fuel, corporate payments, tolls, lodging, gift, and other.
Freedom Mortgage Corp. Freedom Mortgage is a private, full-service residential nonbank mortgage finance company that specializes in the purchase of Ginnie Mae-eligible mortgages through its network of correspondent mortgage brokers.
Greenhill & Co. Inc. Boutique and independent investment bank offering M&A advisory, restructuring, and capital raising services.
Greystar Real Estate Partners LLC Greystar is a leading, fully integrated property management, investment management, and development and construction services company specializing in the multifamily real estate industry.
Hunt Companies Inc. Hunt is engaged in development, investment, management, and financing of real estate for public- and private-sector clients in the U.S., Europe, and internationally.
Jones Lang LaSalle Inc. Jones Lang LaSalle provides commercial real estate and investment management services worldwide. It offers a range of real estate services, including agency leasing, project and development management/construction, capital markets, property management, corporate finance, and facility management outsourcing.
MoneyGram International Inc. MoneyGram provides money transfer services in the U.S. and internationally. The company operates through two segments, Global Funds Transfer and Financial Paper Products. 
Mr. Cooper Group Inc. Mr. Cooper Inc. (f/k/a WMIH Corp., f/k/a Nationstar Mortgage) provides servicing, origination, and transaction-based services to single-family residences. It operates in three segments: Servicing, Originations, and Xome. The Servicing segment is the largest and engages in the collection and recording of mortgage payments, administration of mortgage escrow accounts, negotiations of modifications, and managing foreclosures.
Nelnet Inc. Nelnet provides loan servicing activities, such as loan conversion, application processing, borrower updates, customer service, payment processing, due diligence procedures, funds management reconciliation, and claim processing activities for the company’s student loan portfolio and for third-party clients.
Newmark Group Inc. Newmark is a commercial real estate services company that offers services to both investors/owners and tenants. The company generates revenues from commissions, technology user and consulting fees, property management fees, and mortgage origination and loan servicing.
Ocwen Financial Corp. Ocwen engages in the servicing and origination of mortgage loans in the U.S. Its Servicing segment provides residential and commercial mortgage loan servicing, special servicing, and asset management services to owners of mortgage loans and foreclosed real estate. 
PennyMac Financial Services Inc. PennyMac Financial Services engages in mortgage banking and investment management activities. It operates through three segments: Loan Production, Loan Servicing, and Investment Management. 
Populus Financial Group Inc. Populus Financial provides payday consumer loans, bill pay, check cashing, and prepaid debit card services. 
Provident Funding Associates L.P. Provident originates and services first mortgages, primarily through the wholesale channel. It offers home loans and refinancing options, as well as various loan programs, including fixed-rate loans, adjustable-rate mortgages, super conforming loans, and jumbo loans.
Quicken Loans Inc. Quicken Loans is the largest online and second largest overall mortgage originator in the U.S. It offers mortgages and home-buying programs such as refinancing options through its retail channel. 
Stearns Holdings LLC Stearns is a mortgage origination and servicing company.
TMX Finance LLC TMX Finance offers single payment short-term and multiple payment installment loans primarily secured by automobile titles.
Walker & Dunlop Inc. Walker & Dunlop originates, sells, and services a range of multifamily and other commercial real estate products for owners and developers.
Western Union Company Western Union provides money movement and payment services worldwide. The company operates in three segments: Consumer-to-Consumer, Consumer-to-Business, and Business Solutions. 
WEX Inc. WEX provides corporate card payment solutions worldwide. It operates through three segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions. 
Wheels Inc. Wheels provides automotive fleet leasing and management services for sales fleets and service fleets globally.

Table 6

NBFI Finco Descriptions
Company Description
Apollo Commercial Real Estate Finance Inc. Apollo Commercial Real Estate Finance Inc. operates as a real estate investment trust (REIT) that primarily originates, acquires, invests in, and manages commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments in the U.S.
Ally Financial A bank and financial holding company. Ally offers financing and insurance products to automotive dealers and retail customers, residential mortgage finance, corporate finance, and wealth management. Ally Bank offers online banking.
Blackstone Mortgage Trust Inc. Blackstone Mortgage Trust Inc., a real estate finance company, originates senior loans collateralized by properties in North America, Europe, and Australia. 
Claros Mortgage Trust Inc. CMTG originates and invests in CRE loans, mostly to higher-risk transitional properties, including construction, land, and operating properties in major U.S. markets.
Credit Acceptance Corp. Credit Acceptance offers financing programs that enable automobile dealers to sell vehicles to subprime consumers. The company provides financing programs through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing.
DriveTime Automotive Group Inc. DriveTime is the fourth-largest used vehicle dealership enterprise in the U.S. based on total unit volume. Its business model integrates the acquisition, reconditioning, and sale of used vehicles with financing for customers who may have limited ability to obtain financing to acquire a vehicle from traditional sources.
Fairstone Financial Inc. Fairstone Financial Inc. provides personal and home equity loans. It offers first and second mortgages; loans for homeowners; first and second mortgage refinancing; and retail financing solutions to retailers in Canada. 
goeasy Ltd. The company provides loans and other financial services to consumers and leases household products to consumers in Canada.
Hannon Armstrong Sustainable Infrastructure Capital Inc. Hannon Armstrong Sustainable Infrastructure Capital Inc. provides capital and services to the energy efficiency, renewable energy, and other sustainable infrastructure markets in the U.S. The company’s projects include energy efficiency projects that reduce a building’s or facility’s energy usage or cost through the use of solar generation, including heating, ventilation, and air conditioning systems, as well as lighting, energy controls, roofs, windows, building shells, and/or combined heat and power systems. 
iStar Inc. A commercial real estate REIT with four segments: Lending, Net leasing, Land & Development, and Operating.
Jefferies Finance LLC Joint venture between Jefferies Group and Mass Mutual that originates, distributes, and invests in leveraged loans.
KKR Financial Holdings LLC Specialty finance company that invests in credit and natural resources, among other segments. The credit segment typically invests in speculative-grade corporate loans, the majority of which are held in collateralized loan obligations. The company was founded in 2004, is based in San Francisco, and is 100% owned and managed by KKR & Co.
Ladder Capital Finance Holdings LLLP Ladder is an internally-managed real estate investment trust that originates and invests in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets.
Loancore Capital Markets LLC Privately held originator of commercial real estate loans primarily for sale into CMBS.
Massachusetts Development Finance Agency As Massachusetts' economic development and finance authority, MassDevelopment is committed to stimulating business and promoting economic growth across the state through bond financing, loans and guarantees, tax credits, grants, and various real estate services.
National Rural Utilities Cooperative Finance A not-for-profit cooperative that makes loans to the rural electric utility industry.
Navient Corp. Operates in three segments: Federal Education Loans, Consumer Lending, and Business Services.
OneMain Holdings Inc. Provides consumer finance and insurance products and services. OMF provides secured and unsecured personal loans online and in over 1,600 branches throughout 44 states.
Oxford Finance LLC A specialty finance company that provides capital to life sciences and health care services companies.
Starwood Property Trust Inc. A REIT operating in four segments: Commercial and Residential Lending, Infrastructure, Property, and Investing and Servicing.
World Acceptance Corp. Subprime consumer finance lender offering medium term installment loans and to a lesser extent tax prep services.

This report does not constitute a rating action.

Primary Credit Analyst:Gaurav A Parikh, CFA, New York + 1 (212) 438 1131;
gaurav.parikh@spglobal.com
Secondary Contacts:Stephen F Lynch, CFA, New York (1) 212-438-1494;
stephen.lynch@spglobal.com
Matthew T Carroll, CFA, New York (1) 212-438-3112;
matthew.carroll@spglobal.com

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