Fitch Places First American Corp. on Rating Watch Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has placed all the ratings of the First American Corporation (FAF) and its title insurance companies (the First American Group) on Rating Watch Negative. See below for a full ratings list.

In FAF's pre-announced earnings it noted that the fourth quarter of 2007 would generate an after-tax loss not to exceed $50 million. The company also announced that the title insurance segment's results would be negatively affected by further adverse reserve development. Consequently, the placement on Rating Watch Negative reflects the likelihood that upon review of full-year results Fitch would likely lower ratings by one notch.

FAF announced plans to spin off its Financial Services companies, which consist of the title insurance and specialty insurance segment, into a separate reporting company called First American Financial Corp. Pro forma Sept. 30, 2007 figures show equity of $1.6 billion and debt-to-capital of approximately 20%.

The Information Solutions company, which consists of the current property information and mortgage information segments, including the 75% in First Advantage Corporation, will remain at the existing holding company and be renamed after the separation which is expected to take place in third-quarter 2008. Pro forma Sept. 30, 2007 figures show equity of $1.4 billion and debt-to-capital below 30%.

Fitch believes the spin-off transaction represents management's attempts to improve stock valuation and provide a vehicle for acquisitions in the information services' space. By segregating the companies, the title business would not be negatively affected by higher leverage from future information services acquisitions. While this represents a significant transaction and strategic shift for First American, Fitch's rating action is largely focused on performance below expectations at the title operations.

FAF's and The First American Group's ratings had a Negative Outlook in August 2007 reflecting deterioration in reserves and surplus. Specific issues leading to the revision in Outlook included: a $243.6 million pretax charge to strengthen reserves, and a $181 million drop in surplus related to the statutory valuation of subsidiaries, controlled entities, and affiliates.

In addition, Fitch had longer term concerns about reserve quality and operating performance relative to peers given First American's ratings. First American has one of the highest standalone Insurer Financial Strength (IFS) ratings for title insurance and thus Fitch has expectations that the company's financials and metrics will be representative of an industry leader.

The following ratings have been placed on Rating Watch Negative:

The First American Corporation

--Issuer Default Rating (IDR) at 'A-';

--Senior debt at 'BBB+';

--$200 million 5.7% due August 2014 'BBB+';

--$100 million 7.55% due April 2028 'BBB+'.

First American Capital Trust

--Trust preferred securities at 'BBB';

--$100 million 8.5% due April 2012 'BBB'.

In addition, Fitch has placed the following companies, all with an 'A+' IFS rating, on Rating Watch Negative:

First American Title Insurance Company

First American Title Insurance Co. of New York

First American Title Insurance Co. of Oregon

First American Title Insurance Co. of North Carolina

First American Title Insurance Co. (UK) PLC.

Land Title Insurance Co. of St. Louis

Ohio Bar Title Insurance Co.

Port Lawrence Title & Trust Co.

Mortgage Guaranty & Title Co.

Massachusetts Title Insurance Co.

Western National Title Insurance Company

United General Title Insurance Co.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.