Press Release

Morningstar DBRS Finalizes Provisional Ratings on OneMain Financial Issuance Trust 2024-1

Consumer Loans & Credit Cards
April 29, 2024

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following classes of notes issued by OneMain Financial Issuance Trust 2024-1:

-- $803,630,000 Series 2024-1, Class A at AAA (sf)
-- $103,900,000 Series 2024-1, Class B at AA (sf)
-- $73,330,000 Series 2024-1, Class C at A (sf)
-- $119,140,000 Series 2024-1, Class D at BBB (low) (sf)

CREDIT RATING RATIONALE/DESCRIPTION
The credit ratings are based on a review by Morningstar DBRS 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 (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support Morningstar DBRS' 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's capabilities with regard to originations, underwriting, and servicing.
-- Morningstar DBRS 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 ABS market.
-- The credit quality of the collateral and performance of OneMain's consumer loan portfolio. Morningstar DBRS 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 slightly over 24.00% since 2014. The WA coupon of the initial pool is approximately 25.24% and the transaction includes a reinvestment criteria event if the WA coupon, as billed, is less than 22.00%.
-- The Morningstar DBRS base-case assumption for the finance yield is 22.20%.
-- Morningstar DBRS applied a finance yield haircut of 10.00% for the tranche rated AAA, 8.00% for the tranche rated AA, 6.00% for the tranche rated A, and 3.33% for the tranche rated BBB (low). These haircuts are lower than the range described in the Morningstar DBRS methodology "Rating U.S. Credit Card Asset-Backed Securities." Morningstar DBRS 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 Morningstar DBRS, have generally averaged between 2.00% and 5.00%.
-- The Morningstar DBRS base-case assumption for the monthly principal payment rate is 2.80%.
-- Morningstar DBRS applied a payment rate haircut of 35.00% for the tranche rated AAA, 30.00% for the tranche rated AA, 25.00% for the tranche rated A , and 16.67% for the tranche rated BBB (low). These haircuts are lower than the range described in the Morningstar DBRS methodology "Rating U.S. Credit Card Asset-Backed Securities." Morningstar DBRS 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 came down and were seasonally stable since then. Starting in 2022, there has been some inflation-driven credit deterioration in performance through early 2023, the Company has taken many steps to tighten credit since then. Despite the deterioration, the OMFIT 2024-1 concentration limits allow for better performing collateral to be revolved in during the revolving period. The Morningstar DBRS expected charge-off rate based on the worst-case pool concentrations is 11.50%. Morningstar DBRS assumed a 5.0% recovery credit for both the secured and unsecured collateral
-- The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns March 2024 Update," published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse COVID-19 pandemic scenarios, which were first published in April 2020.
-- The legal structure and presence of legal opinions, which address the true sale of the assets to the depositor, the nonconsolidation of the special-purpose vehicle with OneMain, and that the trust has a valid first-priority security interest in the assets and is consistent with the Morningstar DBRS' "Legal Criteria for U.S. Structured Finance."

Morningstar DBRS' credit ratings on the Class A, Class B, Class C, and Class D Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are related Monthly Interest Amount and the related Note Balance.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, is related to interest on any unpaid Monthly Interest Amount for each of the rated notes and the premium to noteholders for the optional call of the transaction.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-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 (April 15, 2024);
https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions

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

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.

Morningstar DBRS 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

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://dbrs.morningstar.com/about/methodologies.

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024) 
https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024) 
https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Rating U.S. Credit Card Asset-Backed Securities (July 24, 2023); 
https://dbrs.morningstar.com/research/417562

Legal Criteria for U.S. Structured Finance (April 15, 2024) 
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

Ratings

OneMain Financial Issuance Trust 2024-1
  • Date Issued:Apr 29, 2024
  • Rating Action:Provis.-Final
  • Ratings:AAA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 29, 2024
  • Rating Action:Provis.-Final
  • Ratings:AA (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 29, 2024
  • Rating Action:Provis.-Final
  • Ratings:A (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • Date Issued:Apr 29, 2024
  • Rating Action:Provis.-Final
  • Ratings:BBB (low) (sf)
  • Trend:--
  • Rating Recovery:
  • Issued:US
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.