NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'CCC+/RR6' rating to First Data Corp.'s (FDC) proposed offering of $785 million in senior unsecured notes due 2021. Proceeds from the offering will be used to refinance a portion of the company's $784 million in 9.875% Senior Unsecured Notes due 2015.
In conjunction with its offering, First Data announced that results for the March 2013 quarter will likely be lower than the prior year results. The company's measure of adjusted revenue is expected to be roughly flat with 2012 while EBITDA will likely decline by a mid-single digit percentage. The company cited a warmer winter in 2012 as a factor in the relative decline as well as an extra day in the prior year quarter resulting from the leap year.
KEY RATING DRIVERS
Fitch believes that the decline in business during the March quarter is not completely unexpected as pressures had begun to show in the December 2012 quarter's results following 12 to 18 months of relative outperformance by the company. First Data still believes that it can achieve its expected growth targets in 2013. Fitch believes that short of a continued decline in the business through the year, the fact that the company has essentially extended its maturity wall to at least 2016 at this point gives it needed time to revive growth. It is also important to note that First Data is heavily tied to consumer spending which has been negatively impacted by higher taxes in 2013 but could benefit over the next few years if inflation picks up.
Fitch continues to rate FDC's IDR at 'B' with a Stable Outlook. Fitch revised the outlook on FDC to Stable from Negative in January 2013 based on improved operating results during 2012 as well as the extension and refinancing of a significant majority of the company's previously forthcoming term loan maturities in 2014. For a more detailed rationale behind the rating action, please see the press release dated Jan. 8, 2013.
Liquidity as of Dec. 31, 2012 was solid with cash of $608 million ($324 million of which was available to the company in the US) and approximately $1.5 billion available under a $1.52 billion senior unsecured revolving credit facility, approximately $500 million of which expires September 2013 and the rest expiring September 2016. Fitch does not expect the portion of the credit facility expiring this year to be replaced.
Total debt as of December 31, 2012 was $23.0 billion, which includes approximately $15.6 billion in secured debt, $4.5 billion in unsecured debt and $2.5 billion in subordinated debt (all figures approximate). In addition, a subsidiary of New Omaha Holdings L.P. (the direct parent company of First Data Corp.) has outstanding $1.75 billion senior unsecured PIK notes due 2016. These notes are not obligations of FDC and are not consolidated.
For an in-depth review of Fitch's credit analysis and outlook for FDC, please see the report published June 6, 2012 below.
Fitch rates FDC as follows:
--Long-term IDR 'B';
--$499 million senior secured revolving credit facility expiring September 2013 'BB-/RR2';
--$1.0 billion senior secured revolving credit facility expiring September 2016 'BB-/RR2';
--$2.7 billion senior secured term loan B due 2017 'BB-/RR2';
--$258 million senior secured term loan B due 2018 'BB-/RR2';
--$750 million senior secured term loan B due 2018 'BB-/RR2';
--$4.7 billion senior secured term loan B due 2018 'BB-/RR2';
--$1.6 billion 7.375% senior secured notes due 2019 'BB-/RR2';
--$510 million 8.875% senior secured notes due 2020 'BB-/RR2';
--$2.2 billion 6.75% senior secured notes due 2020 'BB-/RR2';
--$2 billion 8.25% junior secured notes due 2021 'CCC+/RR6';
--$1 billion 8.75%/10.0% PIK Toggle junior secured notes due 2022 'CCC+/RR6';
--$784 million 9.875% senior unsecured notes due 2015 'CCC+/RR6';
--$785 million 11.25% senior unsecured notes due 2021 'CCC+/RR6';
--$3 billion 12.625% senior unsecured notes due 2021 'CCC+/RR6'; and
--$2.5 billion 11.25% senior subordinated notes due 2016 'CCC/RR6'.
The Rating Outlook is Stable.
The Recovery Ratings (RRs) for FDC reflect Fitch's recovery expectations under a distressed scenario, as well as Fitch's expectation that the enterprise value of FDC, and hence recovery rates for its creditors, will be maximized in a restructuring scenario (as a going concern) rather than a liquidation scenario. In deriving a distressed enterprise value, Fitch applies a 15% discount to FDC's estimated operating EBITDA (adjusted for equity earnings in affiliates) of approximately $2.4 billion for the LTM ended September 31, 2012 which is equivalent to Fitch's estimate of FDC's total interest expense and maintenance capital spending. Fitch then applies a 6x distressed EBITDA multiple, which considers FDC's prior public trading multiple and that a stress event would likely lead to multiple contraction. As is standard with Fitch's recovery analysis, the revolver is fully drawn and cash balances fully depleted to reflect a stress event. The 'RR2' for FDC's secured bank facility and senior secured notes reflects Fitch's belief that 71%-90% recovery is realistic. The 'RR6' for FDC's second lien, senior and subordinated notes reflects Fitch's belief that 0%-10% recovery is realistic. The 'CCC/RR6' rating for the subordinated notes reflects the minimal recovery prospects and inherent subordination in a recovery scenario.
RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to positive rating action include:
--Greater visibility and confidence in the potential for the company to access the public equity markets.
Future developments that may, individually or collectively, lead to negative rating action include:
--The ratings could be downgraded if FDC were to experience sustained market share declines or if typical price compression accelerates.
--The ratings could also be downgraded if the US economy were to experience a sustained recession.
Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology'(Aug. 8, 2012);
--'Evaluating Corporate Governance'(Dec. 12, 2012);
--'Rating Global Technology Companies Sector Credit Factors' (Aug. 9, 2012);
--U.S. Leveraged Finance Spotlight -- First Data Corporation' (June 6,2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649
U.S. Leveraged Finance Spotlight -- First Data Corporation
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678421
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