Increasing Our Capital Allocation Rating for Bread Financial to Standard

We are increasing our Capital Allocation Rating for no-moat Bread Financial to Standard as the firm’s efforts to improve its balance sheet have significantly reduced our concerns surrounding the firm's leverage. Bread holds the banks that make up the core of its business as subsidiaries to the parent company. Historically, the firm then held significant amounts of corporate debt at the parent level, outside the subsidiary banks. This allowed the firm to remain far more leveraged than a normal, while keeping its underlying banks compliant to reserve requirements. This was a serious point of risk for the firm, as the parent company was still reliant on the success and health of these subsidiary banks to finance this additional debt. As a result, the firm limited room to maneuver during more difficult economic conditions.