Subprime lender Springleaf Holdings Inc. held discussions with
banks in recent weeks about financing a potential takeover of
OneMain Financial, a rival lender owned by Citigroup Inc., a person
familiar with the matter said.
Springleaf's interest could bode well for Citigroup as it
prepares to exit the OneMain business, either through an initial
public offering or a sale.
Citigroup has said it is open to spinning out OneMain as a
separate public company, selling the unit, or a combination of the
two. The bank is expected to file paperwork with regulators in the
coming weeks that would allow it to pursue taking OneMain
public.
Springleaf, based in Evansville, Ind., is likely to engage in
more detailed discussions with OneMain after those documents are
filed, the person familiar with the situation said.
Springleaf's discussions with banks about financing are at an
early stage and any deal discussions with Citigroup could hit a
snag over a variety of issues including price, the person said.
Spokesmen for Springleaf and Citigroup declined to comment.
Citigroup tried in 2011 to sell OneMain, engaging in discussions
with a consortium comprising Warren Buffett's Berkshire Hathaway
Inc., Centerbridge Partners LP and Leucadia National Corp. But
investors were concerned about raising financing for the deal, and
Citigroup was concerned that it would have to sell the business at
a fire-sale price, the Journal reported at the time. The sides
mutually agreed to end those discussions.
Springleaf is also still awaiting details on the exact makeup of
OneMain should Citigroup officially approach potential buyers,
according to the person familiar with the matter. Springleaf
expects Citigroup to attempt to sell the company after filing IPO
documents, this person said.
Some analysts have questioned whether Citigroup is filing IPO
paperwork as a negotiating tactic to attract interest from more
potential investors, including private-equity firms. One difference
in a sale is that Citigroup would be out of the business completely
with one transaction, compared with an IPO, which could leave
Citigroup as a shareholder in the business for months or years.
Citigroup Chief Executive Michael Corbat said this year that the
bank has had the opportunity to sell OneMain, but that the price
wasn't right.
Springleaf, majority owned by private-equity firm Fortress
Investment Group LLC, has weighed a merger with OneMain for years,
said people familiar with the company, dating back to 2011. But
Springleaf at the time struggled, at one point hiring restructuring
lawyers amid a burdensome debt load.
That in part prevented the subprime lender from pursuing OneMain
then, the people said. Fortress purchased an 80% stake in
Springleaf for about $125 million in 2010 from American
International Group Inc., the giant insurer that received a
government rescue during the financial crisis.
Springleaf in ensuing years cut jobs, narrowed losses and raised
money by securitizing loans and tapping debt markets. Springleaf
went public in October 2013. Fortress currently owns about 64% of
Springleaf, according to FactSet, a stake now worth about $2.4
billion.
In the early 2000s, Citigroup was among the biggest subprime
lenders in the U.S. In 2009 Citigroup placed its subprime consumer
finance business into Citi Holdings, where it stores "bad bank"
assets that it wants to sell. It was rebranded as OneMain in
2011.
Mr. Corbat said this year that OneMain is "a terrific business,"
but that making high-interest loans to low-income customers who
don't qualify for credit elsewhere isn't part of "the Citi model"
of focusing on wealthier individuals in big cities.
OneMain is small in the Citigroup sphere: about $10 billion in
assets, in a bank with $1.9 trillion. But even with recent
cutbacks, OneMain has more branches than Citibank in the U.S., with
nearly 1,200 locations to Citibank's roughly 900.
Citigroup has been preparing the unit for a deal. Twice this
year, it had OneMain raise funding by selling securities backed by
its own loans, a move to assure potential buyers that the unit
could stand on its own without funding from the parent company.
Some investors expect a resurgence in subprime lending, leading
them to question whether Citigroup should just hold on to OneMain.
Others say the regulatory risks of owning anything labeled
"subprime" are too great.
"The last thing you need is another regulatory body focused on
you for abusive consumer practices, and this (subprime lending) is
just the kind of business that attracts that sort of behavior,"
said William Schwartz, senior vice president of DBRS, a credit
research and ratings firm.
Write to Mike Spector at mike.spector@wsj.com and Christina
Rexrode at christina.rexrode@wsj.com
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