CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Fidelity National Financial, Inc.'s (FNF) title insurance operating company Insurer Financial Strength (IFS) ratings at 'A-'. Fitch has also affirmed FNF's Long-Term Issuer Default Rating (IDR) at 'BBB-' and senior unsecured debt at 'BB+.' The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Fitch's affirmation of FNF's IFS ratings are based on market-leading scale, margins, and operating company capitalization. However, offsetting these positives, is a history of periodic consolidated balance sheet financial leverage increases to fund acquisitions of ancillary businesses. Although past ventures have been successful, historical results do not mitigate future risks.
FNF's more aggressive holding company capital management, coupled with higher tangible financial leverage, are the primary reasons for the expansion of holding company debt notching in relation to the IFS rating. FNF's financial leverage as of March 31, 2016 was 29%; however, tangible financial leverage was 76%. Debt/EBITDA was 2.0x as of year-end 2015. As of March 30, 2016, GAAP fixed charge coverage was 5.0x.
Fitch's ratings analysis considers both the two tracking stocks: FNF Core (FNF: NYSE) and FNF Financial Ventures (FNFV: NYSE). Fitch recognizes the tracking stock gives FNF's management the ability to streamline the organizational chart and lessen the volatility of title insurance operations; however, it does not alleviate holding company obligations, as neither is a separate legal entity. Any future material organizational structure changes at FNF would merit further assessment from a ratings context.
FNF has a leading position in title insurance accounting for approximately 33% of the U.S. title insurance market by premiums. This scale coupled with an aggressive cost management focus has allowed FNF to be one of the most profitable title insurance companies reporting a GAAP title insurance pretax operating margin of 11.4% for full year 2015 and 7.0% for first quarter 2016.
Fidelity's title insurance operating subsidiaries have strong capitalization with statutory operating leverage of 3.0x as of year-end 2015 and a risk adjusted capital (RAC) score for full year 2015 of 193%, the highest in Fitch's universe.
RATING SENSITIVITIES
The following is a list of key rating drivers that could lead to an upgrade for the holding company ratings:
--Sustained improvement in debt/EBITDA of 2.3x or lower and/or significant improvement in tangible financial leverage;
--No material deterioration in GAAP fixed charge coverage.
These factors, as well as the following, could lead to an upgrade of both IFS and debt ratings:
--Maintenance of operating company capital strength as demonstrated by a RAC score above 175% and net leverage below 4.0x;
--An improvement in stated financial leverage to 25%;
--Maintenance of GAAP title operating margins at current levels that remain in the top tier versus industry peers.
The following is a list of key rating drivers that could lead to a downgrade:
--A RAC score below 130%.
--Any acquisition that increases financial leverage above 35%.
--A significant write-down in goodwill or signs that indicate a potential write-down of goodwill is possible.
--Deterioration in earnings, primarily measured by consolidated pretax GAAP margins, at a pace greater than peer averages.
--Sustained material adverse reserve development.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
Fidelity National Title Ins. Co.
Alamo Title Insurance Co. of TX
Chicago Title Ins. Co.
Commonwealth Land Title Insurance Co.
--IFS ratings at 'A-'.
Fitch has affirmed the following ratings with a Stable Outlook:
Fidelity National Financial, Inc.
--IDR at 'BBB-';
--$300 million 6.6% senior note maturing May 15, 2017 at 'BB+';
--$300 million 4.25% convertible senior note maturing Aug. 15, 2018 at 'BB+';
--$400 million 5.5% senior note maturing September 1, 2022 at 'BB+'
--Four-year $800 million unsecured revolving bank line of credit due July 2018 at 'BB+'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008250
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008250
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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