DBRS Morningstar Finalizes Its Provisional Ratings on OneMain Financial Issuance Trust 2023-2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by OneMain Financial Issuance Trust 2023-2:

-- $540,000,000 Series 2023-2, Class A-1 at AAA (sf)
-- $462,230,000 Series 2023-2, Class A-2 at AAA (sf)
-- $148,770,000 Series 2023-2, Class B at AA (sf)
-- $95,530,000 Series 2023-2, Class C at A (high) (sf)
-- $153,470,000 Series 2023-2, Class D at BBB (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:

-- Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization, subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support DBRS Morningstar’s stressed projected finance yield, principal payment rate, and charge-off assumptions under various stress scenarios.
-- 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 rating addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date.
-- OneMain Finance Corporation’s (OneMain or OMFC) capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of OneMain and considers the OneMain entities that are party to this transaction acceptable originators and OMFC an acceptable servicer of personal loans.
-- OneMain’s senior management team has considerable experience and a successful track record within the consumer loan industry.
-- OneMain is a routine issuer in the asset-backed securities market.
-- The credit quality of the collateral and performance of OneMain’s consumer loan portfolio. DBRS Morningstar has used a hybrid approach in analyzing the OneMain portfolio that incorporates elements of static pool analysis, employed for assets such as consumer loans, and revolving asset analysis, employed for such assets as credit card master trusts.
-- The weighted-average (WA) remaining term of the collateral pool is approximately 48 months.
-- OneMain’s finance yield was relatively stable from 2005 through 2010, ranging from 18.00% to 21.00%. Beginning in 2011, finance yield has increased, averaging over 24.00% since 2014. The WA coupon of the initial pool is approximately 24.53% and the transaction includes a reinvestment criteria event if the WA coupon, as billed, is less than 21.50%.
-- The DBRS Morningstar base-case assumption for the finance yield is 21.50%.
-- DBRS Morningstar applied a finance yield haircut of 10.00% for the AAA-rated tranche, 8.00% for the AA-rated tranche, 6.89% for the A (high)-rated tranche, and 4.00% for the BBB-rated tranche. These haircuts are lower than the range described in the DBRS Morningstar methodology “Rating U.S. Credit Card Asset-Backed Securities.” DBRS Morningstar also used its “Rating U.S. Structured Finance Transactions” methodology when determining the assumptions. In addition, the fixed-rate nature of the underlying loans, lack of interchange fees, and historical yield consistency support these stressed assumptions.
-- Principal payment rates for OneMain’s portfolio, as estimated by DBRS Morningstar, have generally averaged between 2.00% and 5.00%.
-- The DBRS Morningstar base-case assumption for the monthly principal payment rate is 2.75%.
-- DBRS Morningstar applied a payment rate haircut of 35.00% for the AAA-rated tranche, 30.00% for the AA-rated tranche, 27.22% for the A (high)-rated tranche, and 20.00% for the BBB-rated tranche. These haircuts are lower than the range described in the DBRS Morningstar “Rating U.S. Credit Card Asset-Backed Securities” methodology. DBRS Morningstar also used its “Rating U.S. Structured Finance Transactions” methodology when determining the assumptions. In addition, the fixed term of the loans (no more than a 58-month WA remaining term) and OneMain’s payment rate behavior over the 2008–10 period support these stressed assumptions.
--Charge-off rates on the OneMain portfolio have generally ranged between 4.00% and 10.00%. Charge-offs increased significantly during the 2008–10 economic stress but have since returned to pre-recession levels. DBRS Morningstar assumed a 5.0% credit to recoveries for the hard secured portion of the portfolio and 5% credit to recoveries for the unsecured portion of the portfolio. The DBRS Morningstar expected charge-off rate based on the worst-case pool concentrations is 10.45%.
--The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update,” published on June 30, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

DBRS Morningstar’s credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Monthly Interest Amount and the related Note Balance.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligation that is not a financial obligation is related to interest on any unpaid Monthly Interest Amount for each of the rated notes.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023; https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings).

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

The principal methodology applicable to the credit ratings is Rating U.S. Structured Finance Transactions – Appendix I: U.S. Consumer Loan ABS Transactions (February 6, 2023),
https://www.dbrsmorningstar.com/research/409449/rating-us-structured-finance-transactions.

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit 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].

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating U.S. Credit Card Asset-Backed Securities (July 24, 2023), https://www.dbrsmorningstar.com/research/417562/rating-us-credit-card-asset-backed-securities

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023), https://www.dbrsmorningstar.com/research/417415/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023), https://www.dbrsmorningstar.com/research/417416/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

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