Risks and Uncertainties Related to Liquidity and Capital Resources

3 Months Ended

Mar. 31, 2013

Risks and Uncertainties Related to Liquidity and Capital Resources

Risks and Uncertainties Related to Liquidity and Capital Resources

15.  Risks and Uncertainties Related to Liquidity and Capital Resources

We currently have a significant amount of indebtedness in relation to our equity. SLFC’s credit ratings are all non-investment grade, which have a significant impact on our cost of, and access to, capital. This, in turn, negatively affects our ability to manage our liquidity and our ability and cost to refinance our indebtedness.

There are numerous risks to our financial results, liquidity, and capital raising and debt refinancing plans which are not quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:

· the liquidation and related losses within our real estate portfolio could be substantial and result in reduced cash receipts;

· our inability to grow our personal loan portfolio with adequate profitability to fund operations, loan losses, and other expenses;

· our inability to monetize assets including, but not limited to, our access to debt and securitization markets and our note receivable from parent;

· the effect of federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (which, among other things, established the Consumer Financial Protection Bureau (the Bureau) with broad authority to regulate and examine financial institutions), on our ability to conduct business or the manner in which we conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry;

· the potential for increasing costs and difficulty in servicing our loan portfolio, especially our real estate loan portfolio (including costs and delays associated with foreclosure on real estate collateral), as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our real estate loans that were originated or acquired centrally;

· potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans, if it is determined that there was a non-curable breach of a warranty made in connection with the transaction;

· the potential for additional unforeseen cash demands or accelerations of obligations;

· reduced income due to loan modifications where the borrower’s interest rate is reduced, principal payments are deferred, or other concessions are made;

· the potential for declines in bond and equity markets; and

· the potential effect on us if the capital levels of our regulated and unregulated subsidiaries prove inadequate to support current business plans.

At March 31, 2013, we had $1.6 billion of cash and cash equivalents and during the three months ended March 31, 2013 we generated a net loss of $7.4 million and net cash inflow from operating and investing activities of $323.3 million. At March 31, 2013, our remaining principal and interest payments for 2013 on our existing debt (excluding securitizations) totaled $1.5 billion. As of March 31, 2013, we had unpaid principal balances of $1.2 billion of unencumbered personal loans and $567.9 million of unencumbered real estate loans. In addition, SLFC may demand payment of some or all of its note receivable from SLFI ($538.0 million outstanding at March 31, 2013); however, SLFC does not anticipate the need for additional liquidity during 2013 and does not expect to demand payment from SLFI in 2013.

Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due during the next twelve months.

It is possible that the actual outcome of one or more of our plans could be materially different than we expect or that one or more of our significant judgments or estimates about the potential effects of these risks and uncertainties could prove to be materially incorrect and such actual results could materially adversely affect us.