Fitch Rates Western Union's Proposed Senior Unsecured Notes Offering 'BBB+'

Tue Nov 19, 2013 2:20pm EST

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(The following statement was released by the rating agency) NEW YORK, November 19 (Fitch) Fitch Ratings has assigned a 'BBB+' rating to The Western Union Company's (Western Union) proposed $250 million, 5.5-year senior unsecured note offering. Proceeds from the offering will be used for general corporate purposes, including repayment of indebtedness. Fitch expects proceeds will effectively refinance a portion of the company's $500 million 6.5% senior unsecured notes due February 2014. RATINGS DRIVERS Western Union's ratings and Outlook are supported by the following factors: --Extensive domestic and growing international agent network with a strong worldwide brand; --Revenue stability from strong global diversification and consumer exposure; and --An asset-light business model with a largely variable cost structure due to the company's network of agents which generally own and operate the retail locations. Credit concerns include: --New payment technologies could challenge traditional remittance services, particularly if certain economies broadly adopt cashless payments, but this trend will likely take years to materially impact Western Union, if at all; --The compliance risks associated with regulations governing Western Union's business in numerous jurisdictions worldwide. The company received a subpoena by the U.S. Attorney's Office in California in March 2012, related to an investigation against a former Western Union agent. The company was also notified that it is the subject of an investigation into structuring and money laundering. It is not possible to estimate the potential liability, if any, to the company from this action; --Significant foreign currency exposure given broad international diversification although natural hedges in the cost structure of the business essentially protect profitability as a percentage of revenue; --Event risk dominated by shareholder friendly actions as the ratings incorporate Fitch's expectation that Western Union will use the majority of its excess free cash flow for stock buybacks and acquisitions; --Longer-term, Western Union is likely to face increased competition from regional and multi-national banks entering the remittance market. However, Western Union's relatively unique customer base represents a potential asset to financial institutions looking to offer traditional services to migrant workers which the company may be able to monetize in the future; --The risk of adverse political environments or legislation impacting migration flows although this risk is mitigated by Western Union's broad geographic diversification. Liquidity as of Sept. 30, 2013 was solid with cash of $1.7 billion and a fully available $1.65 billion senior unsecured revolving credit facility, expiring January 2017, which fully supports Western Union's $1.5 billion 4(2) commercial paper program. In addition, free cash flow was approximately $545 million over the latest 12 month period. Total debt as of Sept. 30, 2013 was $4 billion consisting principally of: --$500 million in 6.5% senior unsecured notes due February 2014; --$250 million floating rate senior unsecured notes due August 2015; --$250 million in 2.375% senior unsecured notes due December 2015; --$1 billion in 5.93% senior unsecured notes due October 2016; --$500 million in 2.875% senior unsecured notes due December 2017; --$400 million in 3.65% senior unsecured notes due August 2018; --$325 million in 5.253% senior unsecured notes due April 2020; --$500 million in 6.2% senior unsecured notes due November 2036; --$250 million in 6.2% senior unsecured notes due June 2040. The $250 million in floating rate notes due 2015 were issued to refinance in part the notes maturing in 2014. Fitch currently rates as follows: --Issuer Default Rating (IDR) 'BBB+'; --Senior unsecured 'BBB+'; --Senior unsecured credit facility 'BBB+'; --Short-term IDR 'F2'; --Commercial paper program 'F2'. The Rating Outlook is Stable. RATINGS SENSITIVITIES Future developments that may, individually or collectively, lead to negative rating action include: --The potential for Western Union to increase leverage to fund future acquisitions or shareholder friendly actions; --A further decline in EBITDA profit margins due to additional pricing pressures which would suggest a more significant and prolonged competitive challenge than what is currently factored into the ratings. Future developments that may, individually or collectively, lead to positive rating action include: --A sustained rebound in EBITDA margins coupled with high single digit revenue growth over several years. Contact: Primary Analyst Jason Paraschac, CFA Senior Director +1-212-908-0746 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst John M. Witt, CFA Senior Director +1-212-908-0673 Committee Chairperson Jamie Rizzo, CFA Managing Director +1-212-908-0548 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology', dated Aug. 5, 2013. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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