Fitch Comments on Fidelity National Financial's Partial Spin-off
May 27, 2004
Fitch Ratings-Chicago-May 26, 2004: Fitch Ratings has concluded from its initial review that the credit quality of Fidelity National Financial, Inc. (FNF) will not meaningfully change following the partial spin-off of Fidelity National Information Services (FIS). FNF announced a partial spin-off of FIS through an initial public offering (IPO), and its intention to fully distribute its remaining ownership interest to FNF stockholders by mid-2005. This full distribution is contingent upon FNF receiving a favorable tax ruling from the Internal Revenue Service among other details. FNF will receive a dividend of approximately $250 million from FIS, which it will use to pay down existing debt.
FNF's recent growth efforts have focused on FIS' information services and ancillary real estate services lines of business. This public offering is expected to give FIS additional financial flexibility to grow its business. Balanced against this benefit is FNF's loss of non-regulated cash flow from FIS which provided earnings diversification to FNF's mostly title insurance operation.
The Rating Outlook is Positive for Fitch's 'A' insurer financial strength ratings on FNF's title insurance underwriting subsidiaries, as is FNF's 'BBB' long-term issuer rating. The Positive Outlook reflects Fitch's opinion that FNF's overall earnings quality has exceeded expectations, offsetting modest concerns relative to risk-adjusted capital levels at the title insurance subsidiaries. In addition, the ratings reflect FNF's leading market share in title insurance and strong expense control.
The title insurance subsidiaries will not be impacted directly by the planned transaction. Longer-term, however, the title insurance subsidiaries will be solely responsible for meeting holding company needs, such as interest on debt obligations and shareholder dividends. Fitch anticipates that the title operations can suitably manage the additional cash demands without impacting capital quality. FNF's interest coverage ratio was 31.5 times (x) in 2003, and falls on a pro forma basis to just below 25x, which remains a very solid level. Financial leverage at FNF is not expected to differ from current levels.
Entity/Issue/Type Action Rating/Outlook
Fidelity National Title Ins. Co.
Fidelity National Title Ins. Co. of NY
Alamo Title Insurance Co. of TX
Nations Title Insurance of NY
Chicago Title Ins. Co.
Chicago Title Ins. Co. of OR
Security Union Title Ins. Co.
Ticor Title Ins. Co.
--Insurer financial strength 'A'/Positive.
Fidelity National Financial Inc.
--Long-term issuer 'BBB'/Positive.
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