Fortress Wins Big in Turnaround of Subprime Lender Springleaf

A bet on subprime lender Springleaf Holdings Inc. has paid off for Fortress Investment Group LLC.

Fortress, the first publicly traded buyout firm in the U.S., paid $125 million in 2010 for a stake in Springleaf that was valued at $1.68 billion yesterday following the Evansville, Indiana-based lender’s trading debut. Springleaf, which sold 21 million shares at $17 apiece in its initial public offering Oct. 15, gained 13 percent to close at $19.26 in New York.

The offering deepened New York-based Fortress’s gains from a turnaround in the subprime lending market following the housing collapse. Fortress last year took public Nationstar Mortgage Holdings Inc., a mortgage servicer Fortress had acquired in 2006 for more than $550 million. The stock has more than tripled since then, valuing Fortress’s 75 percent stake at more than $3.4 billion as of yesterday’s close, according to data compiled by Bloomberg.

Financial-services investments “were the stars” this year, Wesley Edens, who runs Fortress’s private-equity business, said on an August conference call with investors and analysts. “All the U.S. companies -- so Springleaf, Nationstar, CW -- they all had a terrific year, and they have, we think, a lot of room to continue to grow.” CW refers to CW Financial Services LLC, a mortgage servicer Fortress bought in 2010.

Financial Services

Fortress used Springleaf and Nationstar to build out a financial-services business within its private-equity unit, which manages $14.3 billion in assets. The firm in September hired Michael Nierenberg, Bank of America Corp.’s head of global mortgages and securitized products, as a senior executive in the group to focus on the businesses as well as residential mortgages and real estate investment trusts, or REITs.

Gordon Runte, a spokesman for Fortress, declined to comment on its investment in Springleaf. Barry Roberts, a spokesman for Springleaf, also declined to comment.

Springleaf, incorporated in 1927, makes personal loans for auto repairs and home improvements from 834 branches in 26 states, according to regulatory filings with the U.S. Securities and Exchange Commission. The business turned profitable this year, earning $44.9 million in net income through June 30 after full-year losses of $219 million and $224 million in 2012 and 2011, respectively, the filings show.

American International Group Inc. sold 80 percent of the company to Fortress in August 2010 for $125 million, according to AIG’s annual filing that year. The company, then named American General Finance Inc., changed its name to Springleaf in

2011. Fortress has about 87.1 million shares after the IPO, according to Springleaf’s prospectus.

Springleaf undertook a restructuring last year that involved ceasing real estate lending, closing 231 branches and laying off 820 employees, according to regulatory filings. The company is led by Jay Levine as chief executive officer and Edens, one of Fortress’s three co-founders, as chairman.

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