DBRS Morningstar Assigns Provisional Ratings to OneMain Financial Issuance Trust 2020-2

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes (collectively, the Notes) to be issued by OneMain Financial Issuance Trust 2020-2 (OMFIT 2020-2 or the Issuer):

-- $370,530,000 Series 2020-2, Class A rated AAA (sf)
-- $48,160,000 Series 2020-2, Class B rated AA (sf)
-- $28,420,000 Series 2020-2, Class C rated A (sf)
-- $52,890,000 Series 2020-2, Class D rated BBB (low) (sf)

The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

--The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: July Update,” published on July 22, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020. The scenarios were last updated on July 22, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008–09 financial crisis and the possible impact of the stimulus from the Coronavirus Aid, Relief, and Economic Security Act. The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario assumes some success in containment of the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020.
-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date.
-- OneMain Financial, Inc.’s (OneMain) capabilities with regard to originations, underwriting, and servicing.
-- The credit quality of the collateral and performance of OneMain’s consumer loan portfolio. DBRS Morningstar used a hybrid approach in analyzing the OneMain portfolio that incorporates elements of static pool analysis, employed for such assets as consumer loans, and revolving asset analysis, employed for such assets as credit card master trusts.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with OneMain, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

Credit enhancement in the transaction consists of OC, subordination, excess spread, and a reserve account. The initial amount of OC is 5.00% of the aggregate Loan Principal Balance. The subordination in the transaction refers to the Class B, C, and D Notes, which are subordinate to the Class A Notes. The Reserve Account Required Amount will be the greater of 1.00% of the Initial Note Balance and an amount equal to the aggregate amount of all deposits made to the Reserve Account. Initial Class A credit enhancement of 30.55% includes a 0.95% reserve account, OC of 5.00%, and 24.60% of subordination. Initial Class B credit enhancement of 21.40% includes a 0.95% reserve account, OC of 5.00%, and 15.45% of subordination. Initial Class C credit enhancement of 16.00% includes a 0.95% reserve account, OC of 5.00%, and 10.05% of subordination. Initial Class D credit enhancement of 5.95% includes a 0.95% reserve account and OC of 5.00%. Interest on the Notes is payable monthly at a fixed rate.

The DBRS Morningstar expected charge-off rate based on the worst-case pool concentrations is 11.50%. Two factors led to the final rate: a gradual increase in charge-offs in OneMain’s portfolio and an overall increase in the expected charge-off rate assumption resulting from the expected impact of the coronavirus crisis. Because of the higher charge-off rate, DBRS Morningstar adjusted the loss multiples for this transaction as a result of the ultimate magnitude in increase in the adjusted expected default rate assumption. DBRS Morningstar used loss multiples from the “Rating U.S. Structured Finance Transactions-Appendix I: U.S. Consumer Loan ABS Transactions” methodology in this transaction.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating U.S. Structured Finance Transactions (November 6, 2019) and Rating U.S. Credit Card Asset-Backed Securities (August 7, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277