Fitch Affirms & Removes Fidelity National Financial from Rating Watch Negative
January 27, 2005
CHICAGO--(BUSINESS WIRE) -- Fitch Ratings has affirmed and removed from Rating Watch Negative the 'A-' insurer financial strength ratings of the title insurance underwriting subsidiaries of Fidelity National Financial, Inc. (FNF) and the 'BBB-' long-term issuer rating of FNF. In addition, Fitch has assigned a 'BB-' rating to the senior secured credit facility entered into by FNF's subsidiary, Fidelity National Information Services (FIS). The Rating Outlook is Stable for all ratings.
These rating actions coincide with the finalization of recapitalization plans for FIS. Under the recapitalization plan, FNF is selling a 25% interest in FIS to Thomas H. Lee Partners and Texas Pacific Group, which is expected to result in a gain of approximately $375 million for FNF. In addition, FIS is borrowing $2.8 billion on a secured basis from a consortium of lenders and distributing nearly all the proceeds to FNF as payment for prior acquisitions to build FIS' business.
FNF will use the approximately $2.7 billion in proceeds from FIS to declare a special dividend to stockholders, amounting to roughly $1.8 billion, pay down existing bank debt, and potentially repurchase FNF stock.
Upon announcement of the recapitalization plan, Fitch downgraded FNF and placed its ratings on Rating Watch Negative. The rationale was FNF's willingness to leverage its consolidated balance sheet to approximately a 50% debt-to-total capital ratio, which is beyond what Fitch considered appropriate for the rating category.
The senior secured credit facility at FIS is not guaranteed by FNF and consequently was rated based primarily on its own strengths and weaknesses. The recapitalization plan will leave FIS highly leveraged with modest fixed-charge coverage. Specifically, debt-to-total capital at FIS will be approximately 85% with pretax earnings expected to cover interest expense by 2.5 times (x). Additional concerns include the highly acquisitive nature of the company, potential customer erosion through industry consolidation, and the need to maintain a technological advantage in the processing business.
Favorable considerations in the FIS rating included the company's leading market share in core processing systems to large banks, good retention over a diversified base of customers, and expectations for strong cash flow generation.
Fitch removed FNF's ratings from Rating Watch Negative after analyzing the title operations segregated from information services and determining FNF-only leverage and coverage would be supportive of the current ratings. It is expected that a partial spin-off of FIS will occur in the near future and that FNF will maintain a controlling interest.
Fidelity National Title Insurance Co.
Fidelity National Title Insurance Co. of NY
Alamo Title Insurance Co. of TX
Nations Title Insurance of NY
Chicago Title Insurance Co.
Chicago Title Insurance Co. of OR
Security Union Title Insurance Co.
Ticor Title Insurance Co.
- Insurer financial strength affirmed at 'A-'/removed from Rating Watch Negative/Stable Outlook.
Fidelity National Financial Inc.
- Long-term issuer affirmed at 'BBB-'/removed from Rating Watch Negative/Stable Outlook.
Fidelity National Information Services, Inc.
- Senior Secured Credit Facility assigned 'BB-'/Stable Outlook.
Sourece: Fitch Ratings