Springleaf Sells Subprime Securities Seeking Cash to Repay Debt

Springleaf Finance Corp., the subprime lender mostly owned by Fortress Investment Group LLC, sold securities backed by older mortgages as it seeks to raise cash to repay maturing debt and avert a default, according to a person familiar with the offering.

The company priced a $260.2 million, top-rated portion of the securitization at a yield of 2.59 percent, said the person, who declined to be identified without authorization. The Evansville, Indiana-based lender offered $371 million of notes in the sale.

Fortress purchased 80 percent of Springleaf, then known as American General Finance Inc., from American International Group Inc. in 2010 for $125 million, taking $17 billion of debt off the U.S. controlled insurer’s balance sheet.

Gordon Runte, a spokesman for New York-based Fortress, declined to immediately comment today.

Standard & Poor’s cut Springleaf’s credit rating to CCC from B in February, saying the lender’s ability to securitize assets may prove a key to its chances of surviving without a restructuring. The company, whose unsecured bonds tumbled a day before the downgrade as it said it hired Alvarez & Marsal Inc. and Houlihan Lokey for financial advice, is facing about $2 billion of debt maturities this year.

The lender “will have difficulty meeting its unsecured debt maturities in 2012 without securitizing a large amount of assets, significantly scaling back its originations, or conducting a distressed debt exchange,” New York-based S&P said in a Feb. 3 statement.

Exited Real Estate

Springleaf exited real-estate lending at the start of this year to focus on other consumer financing and its insurance operations, it said last month in a Securities and Exchange Commission filing. It fired about 130 employees at its headquarters on Feb. 15 as a result of the move, branch closings and retreats from businesses in 14 states and southern Florida, according to the filing. It also eliminated about 560 workers at other offices this year.

The lender received $272.7 million on Feb. 10 from the sales of junior portions of previous securitizations it had initially retained, according to the filing.

The mortgages backing the securities sold today have balances of about $473 million and were on average 76 months old, according to the person. Borrowers’ credit current scores average 650, with updated loan-to-values of 91.5 percent.

Springleaf’s $3 billion of 6.9 percent notes due December 2017 rose 0.8 cent to 77.75 cents on the dollar as of 12:06 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt fell to 73.3 cents on Feb. 6, from as high as 79 cents in January.

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