Acquisition
Fitch Downgrades Fidelity National After Acquisition
12:05p ET December 23, 2008 (Business Wire)
Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Fidelity National Financial, Inc. (NYSE: FNF) to 'BB' from 'BBB' and the insurer financial strength (IFS) ratings of its title insurance subsidiaries to 'BBB' from 'A-' (Please see complete list of underwriter IFS ratings below). All ratings remain on Rating Watch Negative.
The IFS ratings of the acquired LandAmerica Financial Group's (LFG) underwriters, Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation, United Capital Title Insurance Company and LandAmerica New Jersey Title Insurance Company, were upgraded to 'BBB-' from 'BB'. The ratings remain on Rating Watch Evolving.
The rating action follows FNF's acquisition of LFG's title insurance underwriters for $235 million paid to LFG, plus a $157 million capital infusion into the acquired underwriters. The $157 million infusion was paid by FNF's underwriters directly into LFG's underwriters to replace a receivable from the former holding company, LFG.
While the $157 million payment will improve the quality of capital at the acquired underwriters, they will remain undercapitalized relative to FNF's underwriters. In addition, FNF's underwriters will also be in a weaker risk-adjusted capital position following the acquisition.
Besides the less favorable statutory capital position of the combined entity, the factors contributing to the rating action include uncertainty of further adverse reserve development, increased financial leverage at the holding company, and general integration risk during an extraordinarily difficult operating environment.
The resolution of the Rating Watches is expected to take place in early 2009 as FNF's management articulates its capitalization plans for its underwriter subsidiaries. Fitch will be using its risk-adjusted capital (RAC) model to gauge FNF's capital position relative to industry peers. Any further downward rating actions are expected to be limited to one or two notches.
At the close of the third quarter of 2008, debt-to-total capital at FNF was 32%, which currently exceeds FNF's long-term target debt-to-total capital of 20%-25%. Financial leverage and general flexibility remain a key rating issues for FNF and the title insurance industry during the current stressed market environment.
Fitch has downgraded the following ratings, which remain on Rating Watch Negative:
Fidelity National Financial, Inc.
-- Issuer Default Rating (IDR) downgraded to 'BB' from 'BBB';
-- $250 million 7.30% senior note maturing Aug. 15, 2011 downgraded to 'BB-' from 'BBB-';
-- $250 million 5.25% senior note maturing March 15, 2013 downgraded to 'BB-' from 'BBB-'.
-- Unsecured bank line of credit downgraded to 'BB-' from 'BBB-'.
Fidelity National Title Ins. Co.
Ticor Title Ins. Co. of FL
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.
National Title Ins. Co. of NY
-- Insurer financial strength (IFS) downgraded to 'BBB' from 'A-'.
Fitch has upgraded the following ratings, which remain on Rating Watch Evolving:
Lawyers Title Insurance Corp.
Commonwealth Land Title Insurance Co.
LandAmerica NJ Title Insurance Co.
