Fitch Downgrades First American Corp. IDR to 'BBB+'; Outlook to Negative

February 12, 2008

CHICAGO---Fitch Ratings has downgraded the following ratings of The First American Corporation (FAF):

  • The First American Corporation
    • Issuer Default Rating (IDR) to 'BBB+' from 'A-';
    • Senior unsecured debt to 'BBB' from 'BBB+'.
  • First American Capital Trust
    • Trust preferred securities to 'BBB-' from 'BBB';
  • First American Insurance Companies (First American Group)
  • See below for a complete list of members.
    • Insurer Financial Strength (IFS) to 'A' from 'A+'.
Fitch has placed all of the ratings on Rating Outlook Negative.

Fitch's rating action is based on further analysis of the company's pre-announced fourth quarter results, in which the company noted it would generate an after-tax loss not to exceed $50 million, and that the title insurance segment's results would be negatively affected by further adverse reserve development.

Fitch's rating actions today resolve the Negative Watch placed on the company after its announced plan to spin off its information services unit. Fitch also highlights that post spin off, First American Financial, will not have access to unregulated cash flows to service its debt.

First American had one of the highest standalone IFS ratings for title insurance companies within Fitch's rating universe and thus Fitch had expectations that the company's financials and metrics would be representative of an industry leader. Fitch believes that today's rating action incorporates the underperformance of expectations and better aligns the company with peers.

While Fitch believes that management is actively taking initiatives to address concerns about profitability, reserve quality, and long term strategic direction Fitch remains cautious about the company's performance over the next year given the current operating environment. However, Fitch notes that its ratings look through cyclical performance and that First American's performance over the next 12 to 18 months relative to peers will help resolve the current Negative Rating Outlook.

Fitch has downgraded the following ratings and placed the ratings on Outlook Negative:

  • The First American Corporation
    • IDR to 'BBB+' from 'A-';
    • Senior debt to 'BBB' from 'BBB+';
    • $200 million senior unsecured notes 2014 'BBB';
    • $100 million senior unsecured debentures due 2028 'BBB'.
  • First American Capital Trust
    • $100 million preferred stock due 2012 to 'BBB-' from 'BBB'.
  • Fitch has downgraded the following companies IFS Rating to 'A' from 'A+' and placed the ratings on Outlook Negative:
  • First American Title Insurance Company
  • First American Title Insurance Co. of New York
  • First American Title Insurance Co. of Oregon
  • First American Title Insurance Co. of North Carolina
  • First American Title Insurance Co. (UK) PLC.
  • Land Title Insurance Co. of St. Louis
  • Ohio Bar Title Insurance Co.
  • Port Lawrence Title & Trust Co.
  • Mortgage Guaranty & Title Co.
  • Massachusetts Title Insurance Co.
  • Western National Title Insurance Company
  • United General Title Insurance Co.
  • Fitch has initiated coverage on the following companies with an IFS Rating of 'A' and placed the ratings on Outlook Negative:
  • Pacific Northwest Title Ins Co
  • Censtar Title Ins Co
  • T.A. Title Ins Co
  • First American Title Ins Co of KS

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site

Source: Fitch Ratings


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