TEXT-Fitch rates Fidelity National Financial debt 'BB+'
Aug 23 - Fitch Ratings has assigned a 'BB+' debt rating to Fidelity National Financial, Inc.'s (FNF) 10 year $400 million senior unsecured debt offering. Fitch has also affirmed the 'BBB' Insurer Financial Strength (IFS) of Fidelity National Financial, Inc.'s (FNF) title insurance companies at 'BBB+'. Additionally, Fitch has affirmed the Issuer Default Rating (IDR) of FNF at 'BBB-', and the existing senior debt ratings at 'BB+.' The Rating Outlook for all ratings is Stable. A complete list of rating actions follows at the end of this release. The affirmation of FNF's ratings is driven by the underwriter's sustained profitability despite challenging economic and real estate market conditions, improved capital position, and adequate reserve position. Offsetting these positives is Fitch's concern about FNF's capital management strategy and willingness to periodically increase balance sheet financial leverage to fund acquisitions, which Fitch views as a limiting factor to the company's rating. While FNF has been successful to date in most of its acquisitions, past success does not guarantee future success. FNF's new $400 million 5.5% debt issuance matures on Sept. 1, 2022. This issue is an unsecured obligation and will rank equal in right of payment with the company's existing and future unsecured and unsubordinated indebtedness. The use of proceeds is to prefund the maturing $236.4 million March 2013 issue and for general corporate purposes. The maturing debt had a slightly lower (25 basis points) coupon so interest coverage is expected to be slightly reduced from this issuance. Interest coverage as of June 30, 2012 was 9.5 times (x). As of June 30, 2012, FNF had a financial leverage ratio of 19.3% and a tangible financial leverage ratio of 30.7%. While stated financial leverage would increase to 27.4% on a pro forma basis for June 30, 2012 for the additional $400 million in new debt, adjusting for the March 2013 maturity financial leverage would be 21.9% or 34.2% on a tangible basis. Incorporated into Fitch's current ratings is FNF's dominant position in the title insurance market accounting for approximately 35% of the U.S. title insurance market. This scale coupled with an aggressive cost management focus has allowed FNF to be one of the most profitable title insurance companies. As of second quarter 2012, FNF reported a GAAP combined ratio of 88.8%, the best of the five publicly traded U.S. title insurance companies. The Stable Outlook on the IFS ratings reflects FNF's operating advantage relative to peers in light of continued challenges faced by the title insurance industry. Specifically, mortgage originations are forecast to fall during 2012, placing added pressure on title insurance margins. The following is a list of key rating drivers that could lead to an upgrade: --Change in operating strategy to target operating company capital towards Fitch's guidelines for 'A' IFS category title insurers. --An increase in capital adequacy as measured by Fitch's Risk Adjusted Capital (RAC) ratio to approximately 150% and a sustained improvement in traditional operating company capital metrics such as net leverage below 6.0x. --Sustained calendar and accident year profitability. The following is a list of key rating drivers that could lead to a downgrade: --An absolute RAC score below 105% or deterioration in capitalization such as net leverage above 7.5x. --A sustained increase in financial leverage to 30% or higher. --Deterioration in earnings, primarily measured by pretax GAAP margins, at a pace greater than peer averages. --Sustained adverse reserve development. --Any acquisition that makes a meaningful change to the company's profile, particularly one that increases financial leverage. Fitch has assigned a 'BB+' to the following debt issues: Fidelity National Financial, Inc. --$400 million 5.5% senior note maturing Sept. 1, 2022. Fitch has affirmed the following ratings with a Stable Outlook: Fidelity National Financial, Inc. --IDR at 'BBB-'; --$300 million 4.25% convertible senior note maturing Aug. 15, 2018 at 'BB+'; --$236.5 million 5.25% senior note maturing March 15, 2013 at 'BB+'; --$300 million 6.6% senior note maturing May 15, 2017 at 'BB+'; --Four year $800 million unsecured revolving bank line of credit due April 16, 2016 at 'BB+'. Fidelity National Title Ins. Co. Alamo Title Insurance Co. of TX Chicago Title Ins. Co. Commonwealth Land Title Insurance Co. --IFS ratings at 'BBB+'. Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Sept. 22, 2011). Applicable Criteria and Related Research: Insurance Rating Methodology