Fidelity National Title Group Inc. Assigned 'BBB-' Ratings
October 18, 2005
Ratings Put On Watch Positive
NEW YORK (Standard & Poor's) --Standard & Poor's Ratings Services said today that it assigned its 'BBB-' counterparty credit rating to Fidelity National Title Group Inc. (FNT) and assigned its 'BBB-' senior debt rating to FNT 's $300 million senior secured credit facility.
At the same time, Standard & Poor's put these ratings on CreditWatch with positive implications because of the current CreditWatch positive status on the parent holding company, Fidelity National Financial Inc. (NYSE:FNF) and the seven title underwriters that constitute the Fidelity National Title Insurance Cos. Group (Fidelity National).
"The ratings on FNT are primarily based on the underlying 'A-' counterparty credit and financial strength ratings on its title insurance subsidiary operations (collectively, Fidelity National)," noted Standard & Poor's credit analyst Donovan Fraser.
In May of 2005, FNF restructured its Title insurance operations under FNT, a newly formed Title holding company. In connection with the restructuring, a pro rata distribution of 17.5% of the outstanding common stock of FNT will be made to FNF stockholders, while the remaining 82.5% will be retained by FNF. Currently, FNT's $500 million intercompany mirror notes synthetically replace FNF's existing $500 million senior unsecured notes. Standard & Poor's believes that the mirror notes more accurately match FNF's senior debt obligations to the title insurance operating entities that ultimately service the debt. Standard & Poor's estimates FNT's pro forma debt-to-total capital and GAAP pretax interest coverage to be about 25% and 15x, respectively--in line with the rating level.
Standard & Poor's concerns about FNF's announced plans to increase indebtedness while attempting to integrate large acquisitions in the past 12 months led to a one-notch downgrade and an initial CreditWatch negative status on FNF and its related entities. These concerns were partially allayed on Sept. 15, 2005, when FNF announced its intentions to acquire Certegy Inc. The proposed merger led to a change from CreditWatch negative to the current CreditWatch positive status. Standard & Poor's believes that the proposed merger with Certegy--along with the lower-than-previously expected level of FNT borrowing ($150 million)--places significantly less stress on both the title insurance companies and the consolidated enterprise. An offsetting factor is that the creation of FNT--in addition to any other major acquisitions--adds to the complexity of the organization and introduces further potential for the distraction of senior management. Standard & Poor's concerns are further allayed by the company's decision to reduce the current FNF $700 million undrawn senior credit facility to $250 million.
Source: Standard & Poor's
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