CHICAGO--(BUSINESS WIRE)--Fitch Ratings has placed Fidelity National Financial, Inc.'s (FNF) 'BBB-' Long-Term Issuer Default Rating (IDR) and 'BB+' senior unsecured debt rating on Rating Watch Positive. Fitch took no rating action on FNF's title insurance operating company Insurer Financial Strength (IFS) ratings of 'A-'. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Fitch's rating action follows an announcement from the company to restructure the organization into three legally separate entities pending regulatory and shareholder approvals by third-quarter 2017.
Fitch currently uses consolidated accounting as the basis for its holding company ratings. 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.
Fitch currently widens the holding company notching an additional notch due to more aggressive holding company capital management and higher tangible financial leverage. Should the reorganization be executed according to plan, financial leverage, which was 29% as of Sept. 30, 2016, will be reduced by approximately 11 percentage points and tangible financial leverage will also improve.
Additionally, Fitch believes that post-reorganization, capital will be managed in line with a standalone title insurance operation, which Fitch views positively. However, Fitch notes that management did cite a potential more aggressive stock repurchase program, which could dampen any inherent benefit.
RATING SENSITIVITIES
The following is a list of key rating drivers that could lead to an upgrade for the holding company ratings:
--The proposed reorganization is executed according to plan thereby reducing financial leverage;
--Capital management is consistent with Fitch's guidelines for standard debt notching such as financial leverage at or below 30%.
The following is a list of key rating drivers that could lead to the holding company ratings remaining at current levels:
--Failure to execute the reorganization plans according to publicly disclosed terms;
--Aggressive capital management post-reorganization that materially increases financial leverage or materially reduces fixed charge coverage.
FULL LIST OF RATING ACTIONS
Fitch has placed the following ratings on Rating Watch Positive:
Fidelity National Financial, Inc.
--Long-Term 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 Sept. 1, 2022 at 'BB+';
--Four-year $800 million unsecured revolving bank line of credit due July 2018 at 'BB+'.
Fitch took no rating action on the following operating subsidiaries 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-'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 15 Sep 2016)
https://www.fitchratings.com/site/re/887191
Additional Disclosures
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016266
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https://www.fitchratings.com/regulatory
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