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S&P Affirms Fidelity National Title & Units Ratings

January 19, 2000

Off Watch

NEW YORK, /PRNewswire/ -- Standard & Poor's today affirmed its single-'A' counterparty credit and financial strength ratings on Fidelity National Title Insurance Co., Fidelity National Title Insurance Co. of New York, and Alamo Title Insurance. These three title insurance underwriters represent the title insurance underwriting operations of their parent, Fidelity National Financial Inc. (Fidelity National). The outlook is stable.

At the same time, Standard & Poor's removed its ratings from CreditWatch, where they were placed on Aug. 9, 1999, with developing implications.

Chicago Title Corp.'s senior debt, financial strength, and counterparty credit ratings remain on CreditWatch with negative implications where they were placed Aug. 9, 1999, following the announcement that the two title organizations intended to merge their respective title insurance operations.

Upon the consummation of the merger between Fidelity National and Chicago Title Corp., Standard & Poor's expects to assign its triple-'B'-minus senior debt and counterparty credit ratings to the $800 million senior credit acquisition facility of Fidelity National.

Additionally, Standard & Poor's anticipates lowering to single-'A'-minus from single-'A' the financial strength and counterparty credit ratings on Chicago Title Corp.'s insurance operations, and removing the triple-'B'-minus senior debt and counterparty credit ratings on Chicago Title Corp.'s Senior Note shelf offering pending the merger's expected March 2000 consummation.

In connection with the merger, Fidelity National is expected to draw down significantly from an $800 million senior credit acquisition facility. At the same time, Fidelity National will also issue $500 million in common equity to Chicago Title Corp. shareholders. The combination of the two transactions will raise Fidelity National's debt-to-total capital ratio to a pro forma 43.0% at year-end 1999 from 29.9% at Sept. 30, 1999; prospective interest coverage is expected to remain between 4 times (x) and 6x in the next three years.

Due to the financing terms of the deal, Fidelity National will incur a large portion of goodwill so that, when combined with pre-existing goodwill from the two organizations, intangibles will account for 77.4% of pro forma combined equity. Although Fidelity National's tangible net worth will be strained in the near term, Standard & Poor's believes the prospective earnings accretion and increased cash flows to be gained from this transaction outweigh the near term negatives associated with such a large intangible.

OUTLOOK: STABLE

Standard & Poor's believes Chicago Title Corp. represents a strategic acquisition for Fidelity National that provides an immediate national presence, improved business position, and overall financial strength. Conversely, Fidelity National's financial leverage will be constrained as pertains to additional draw downs. In addition, moderate interest rate upticks in the last six months should put some downward pressure on Fidelity National's earnings and operating cash flows for debt service in 2000. However, because of the senior credit facility's scheduled amortization and financial covenants, combined with Fidelity National's expenditure and capital management strategies, Standard & Poor's expects the debt-to-total capital ratio to fall below 30% and goodwill to account for only 50% of Fidelity National's shareholders' equity by 2002. Because of the high financial leverage incurred with the transaction, Standard & Poor's also believes Fidelity National's expected interest coverage of 4x-6x until 2002 represents a good medium-term margin of safety because of the negative effects of real estate market and interest-rate volatility on title insurer earnings. -- CreditWire.

Source: Standard & Poor's



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