TEXT-Fitch rates First Data proposed senior secured loan
Sept 13 - Fitch Ratings has assigned a 'BB-/RR2' Rating to First Data Corp.'s (FDC) proposed $400 million senior secured loan issuance and $250 million senior secured note offering. Proceeds from the offering will be used to repay an approximately equivalent amount of borrowings outstanding under the company's remaining $1.8 billion senior secured term loan maturing 2014. The $250 million note offering will be an extension of the 6.75% notes due 2020 FDC issued in August 2012. FDC's Issuer Default Rating (IDR) is currently 'B', and the Rating Outlook is Negative. For an in-depth review of Fitch's credit analysis and Outlook for FDC, please see the report published June 6, 2012. FDC reported solid results for its June 2012 quarter on Aug. 1. For the quarter, adjusted revenue (which excludes reimbursable expenses plus other adjustments) increased 3% over the prior year period. Fitch's estimate of EBITDA for the quarter at $594 million was up 8.4%. For the latest 12 month (LTM) period, Fitch estimates EBITDA at $2.3 billion, up 13% over the prior period. Growth in the quarter was led by the company's domestic Retail Alliance Services (RAS) segment which posted 8% revenue growth and 18% EBITDA growth. The RAS business continues to represent two-thirds of consolidated EBITDA. International revenue declined 6% but EBITDA declined only 1% due both to mix and continued operational improvements. Fitch estimates free cash flow for the quarter at $282 million and $168 million on an LTM basis (adjusted for distributions to minority partners). FDC's cash flow has been benefitting from favorable working capital trends (related to the timing of settlement payables and receivables) principally during its second and fourth quarters over the past few years. This trend continued in the June 2012 quarter but typically evens out in the third quarter. Total working capital benefit to cash in the quarter was $201 million and $138 million for the LTM period. The net working capital benefit over the LTM period largely represents FDC's focus on improved working capital management (exclusive of the quarterly timing issues related to settlements). Total liquidity as of June 30, 2012 was solid and consisted of $484 million in cash ($223 million available for corporate use) and $1.4 billion available under a $1.5 billion senior secured revolving credit facility, roughly $500 million of which expires in September 2013 with the remaining expiring September 2016. Total debt as of June 30, 2012 was $22.5 billion, which includes approximately $15.5 billion in secured debt, $4.8 billion in unsecured debt and $2.5 billion in subordinated debt (all figures approximate). In addition, a subsidiary of New Omaha Holdings L.P. (the parent company of First Data Corp.) has outstanding $1.7 billion senior unsecured PIK notes due 2016. These notes are not obligations of FDC, and FDC provides no credit support of these notes. Fitch continues to rate FDC as follows: --Long-term IDR 'B'; --$499 million senior secured revolving credit facility expiring September 2013 'BB-/RR2'; --$1 billion senior secured revolving credit facility expiring September 2016 'BB-/RR2'; --$1.8 billion senior secured term loan B due 2014 'BB-/RR2'; --$2.4 billion senior secured term loan B due 2017 'BB-/RR2'; --$295 million senior secured term loan B due 2017 'BB-/RR2'; --$4.7 billion senior secured term loan B due 2018 'BB-/RR2'; --$1.6 billion 7.375% senior secured notes due 2019 'BB-/RR2'; --$510 million 8.875% senior secured notes due 2020 'BB-/RR2'; --$1.3 billion 6.75% senior secured notes due 2020 'BB-/RR2'; --$2 billion 8.25% junior secured notes due 2021 'CCC+/RR6'; --$1 billion 8.75%/10% PIK Toggle junior secured notes due 2022 'CCC+/RR6'; --$3 billion 12.625% senior unsecured notes due 2021 'CCC+/RR6'. --$784 million 9.875% senior unsecured notes due 2015 'CCC+/RR6'; --$748 million 10.55% senior unsecured notes with mandatory paid-in-kind (PIK) interest through September 2011 due 2015 'CCC+/RR6'; and --$2.5 billion 11.25% senior subordinated notes due 2016 'CCC/RR6'. The Rating Outlook is Negative. The Recovery Ratings (RRs) for FDC reflect Fitch's recovery expectations under a distressed scenario, as well as Fitch's expectation that the enterprise value of FDC, and hence recovery rates for its creditors, will be maximized in a restructuring scenario (as a going concern) rather than a liquidation scenario. In deriving a distressed enterprise value, Fitch applies a 20% discount to FDC's estimated operating EBITDA (adjusted for equity earnings in affiliates) of approximately $2.3 billion for the LTM ended June 30, 2012 which is equivalent to Fitch's estimate of FDC's total interest expense and maintenance capital spending. Fitch then applies a 6x distressed EBITDA multiple, which considers FDC's prior public trading multiple and that a stress event would likely lead to multiple contraction. As is standard with Fitch's recovery analysis, the revolver is fully drawn and cash balances fully depleted to reflect a stress event. The 'RR2' for FDC's secured bank facility and senior secured notes reflects Fitch's belief that 71%-90% recovery is realistic. The 'RR6' for FDC's second lien, senior and subordinated notes reflects Fitch's belief that 0%-10% recovery is realistic. The 'CCC/RR6' rating for the subordinated notes reflects the minimal recovery prospects and inherent subordination in a recovery scenario. WHAT COULD TRIGGER A RATING ACTION Future developments that may, individually or collectively, lead to negative rating action include: --Fitch believes the risk of a downgrade of FDC in the near term is largely macro driven. If the U.S. were to slip into an economic decline or if the European economy declines significantly, it is possible that the ratings could be negatively affected. --The ratings could also be downgraded if FDC were to experience sustained market share declines or if typical price compression accelerates. Future developments that may, individually or collectively, lead to positive rating action include: --The current Rating Outlook is Negative. As a result, Fitch does not currently anticipate developments with a material likelihood, individually or collectively, leading to a rating upgrade.
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