S&P Raises Counterparty, Issue Ratings on Fidelity National Financial (FNF) to 'BBB' Oct 30, 2014 02:57PM

Standard & Poor's Rating Services said today that it has raised issue and counterparty credit ratings on Fidelity National Financial (NYSE: FNF) to 'BBB' from 'BBB-' and its financial strength ratings on FNF's operating title insurance companies (Fidelity National Title Insurance Co., Chicago Title Insurance Co., Alamo Title Insurance Co., and Commonwealth Land Title Insurance Co.--collectively, FNF Title) to 'A' from 'A-'. The outlook is stable.

"We based the rating upgrades on our view that FNF Title will maintain its strong competitive positon and financial profile. FNF Title's rating benefits from our positive view of its business profile strength, which has outperformed its rated peers, and the group's ability to sustain its market share position and profitability in a constantly changing U.S. mortgage and real estate origination market," said Standard & Poor's credit analyst Marc Cohen. "We view FNF's Black Knight Financial Services LLC, the company's technology and transaction services and mortgage servicing segment, as a material contributor to FNF's core operations EBIT, providing diversification to its niche title insurance offerings.

The stable outlook reflects our expectation that FNF Title will maintain its strong competitive position and continue to demonstrate higher operating performance metrics than peers and a market share above 30% in the title insurance sector. "Although we see limited upside at this time, we would consider an upgrade if we believed FNF Title can maintain a lower risk position that would reduce potential earnings volatility and future capital migration at its operating insurance companies," Mr. Cohen continued.

We would lower the rating by at least one notch if FNF Title's market share falls below 30%, if it becomes unable to maintain title-segment generally accepted accounting principles (GAAP) adjusted EBIT return on revenue of at least 10%, or if its distribution of extraordinary capital from its regulated insurance companies materially affects its capital adequacy. A sustained consolidated EBITDA fixed-charge coverage ratio of less than 5x or financial leverage at or above 35% could also lead to a downgrade.


Fitch Sees Gradual Rise in Rates as Positive for U.S. Banks Oct 30, 2014 11:52AM

A gradual rise in interest rates would be a net positive for U.S. banks as higher rates could translate into improved earnings through improved loan growth and higher pricing, according to a Fitch Ratings report.

As noted in a recent report on interest rates, Fitch's base case scenario assumes the completion of the Fed's tapering program, strengthening world economic growth over 2014 - 2016 and a gradual tightening of monetary policy over the next 12 months. Fitch's stress case scenario involves a sharper hike of interest rates amid weakening or stagnant economic growth, among other factors.

Under the base case viewpoint, earnings improvement resulting from higher interest rates would be partially offset by higher funding costs and some increased provisioning. This is due to higher utilizations and ongoing seasoning of loan portfolios. These views are incorporated in Fitch's current bank ratings.

The less-likely stress scenario could be more challenging for U.S. banks. In this scenario, banks would experience higher funding costs without a meaningful pick-up in asset yields. This would also cause potential shocks to capital via changes in the valuations of bank securities portfolios and possible deterioration of asset quality metrics to the extent that a combination of higher rates and a weaker economy causes credit deterioration in underlying borrowers.

Under both Fitch scenarios, rising interest rates will cause a decline in the value of securities holdings for banks under the Basel III Advanced Approach, as loses in accumulated other comprehensive income (AOCI) will count against regulatory measures.


UPDATE: American Realty Capital Properties (ARCP) may be cut to junk by S&P Oct 29, 2014 03:02PM

(Updated - October 29, 2014 3:02 PM EDT)

American Realty Capital Properties (NASDAQ: ARCP) may be cut to junk by S&P.

UPDATE - More form S&P's press release:

Standard & Poor's Ratings Services today placed its ratings, including the 'BBB-' corporate credit rating on American Realty Capital Properties Inc. (ARCP) and its operating partnership, ARC Properties Operating Partnership L.P, on CreditWatch with negative implications.

ARCP is a comparatively young, but large triple-net lease REIT that has grown very quickly in 2014 as a result of heightened portfolio acquisition activity. On Oct. 29, 2014, ARCP announced that its CFO and CAO were resigning because of accounting improprieties. Existing employees have been appointed to replace the departed CFO and CAO.

"The CreditWatch placement reflects some uncertainty, in our view, that the company has the adequate infrastructure to manage its robust growth and we will monitor the extent to which the company's access to equity and debt capital markets is impacted by these events," said credit analyst Jaime Gitler. "An investigation underway by the audit committee of the company's board of directors has not uncovered any errors that would affect previously reported audited results, but the investigation is on-going and we will monitor developments as they occur."

Standard & Poor's will seek to resolve the CreditWatch within the next 90 days. We will meet with management within the next few weeks to review the company's plan to bolster its infrastructure and improve financial controls. Upon completion of our review, we could lower the corporate credit rating by one notch (corporate credit rating to 'BB+' from 'BBB-') or we could leave the ratings unchanged.



  • American Realty Capital Properties Inc. (ARCP) has announced that its CFO and CAO have resigned effective immediately in light of accounting improprieties in the financial statements.
  • A new financial leadership team has been appointed to replace the executives that departed.
  • We are placing our ratings on ARCP on CreditWatch with negative implications following these announcements.
  • We will meet with management to evaluate the capability of the newly installed financial executives and will review efforts underway to improve financial controls and transparency in the financial statements. We will seek to better understand any potential fallout or implications for capital availability as a result of this news and may reconsider our current assessment of the company's business risk profile.


UPDATE: American Realty Capital Properties (ARCP) may be cut to junk by S&P Oct 29, 2014 03:02PM

(Updated - October 29, 2014 3:02 PM EDT)

American Realty Capital Properties (NASDAQ: ARCP) may be cut to junk by S&P.

UPDATE - More form S&P's press release:

Standard & Poor's Ratings Services today placed its ratings, including the 'BBB-' corporate credit rating on American Realty Capital Properties Inc. (ARCP) and its operating partnership, ARC Properties Operating Partnership L.P, on CreditWatch with negative implications.

ARCP is a comparatively young, but large triple-net lease REIT that has grown very quickly in 2014 as a result of heightened portfolio acquisition activity. On Oct. 29, 2014, ARCP announced that its CFO and CAO were resigning because of accounting improprieties. Existing employees have been appointed to replace the departed CFO and CAO.

"The CreditWatch placement reflects some uncertainty, in our view, that the company has the adequate infrastructure to manage its robust growth and we will monitor the extent to which the company's access to equity and debt capital markets is impacted by these events," said credit analyst Jaime Gitler. "An investigation underway by the audit committee of the company's board of directors has not uncovered any errors that would affect previously reported audited results, but the investigation is on-going and we will monitor developments as they occur."

Standard & Poor's will seek to resolve the CreditWatch within the next 90 days. We will meet with management within the next few weeks to review the company's plan to bolster its infrastructure and improve financial controls. Upon completion of our review, we could lower the corporate credit rating by one notch (corporate credit rating to 'BB+' from 'BBB-') or we could leave the ratings unchanged.



  • American Realty Capital Properties Inc. (ARCP) has announced that its CFO and CAO have resigned effective immediately in light of accounting improprieties in the financial statements.
  • A new financial leadership team has been appointed to replace the executives that departed.
  • We are placing our ratings on ARCP on CreditWatch with negative implications following these announcements.
  • We will meet with management to evaluate the capability of the newly installed financial executives and will review efforts underway to improve financial controls and transparency in the financial statements. We will seek to better understand any potential fallout or implications for capital availability as a result of this news and may reconsider our current assessment of the company's business risk profile.


S&P Lowers Subprime, Special Rankings on Ocwen Loan Servicing (OCN); Outlook Negative Oct 29, 2014 11:03AM

Standard & Poor's Ratings Services lowered its prime, subprime, special, and subordinate-lien residential servicer rankings on Ocwen Loan Servicing LLC; the outlook remains negative. On Oct. 21, 2014, The Superintendent of the New York Department of Financial Services (DFS) sent a letter to Ocwen Financial (NYSE: OCN), stating that during its review of Ocwen's mortgage servicing practices it had uncovered serious issues with Ocwen's systems and processes, including Ocwen's backdating of potentially hundreds of thousands of foreclosure-related letters to borrowers.

In June 2014, the DFS monitor discovered a backdated mortgage modification denial letter. The DFS says Ocwen has made several false representations related to the scope of the backdating and the purported changes to Ocwen's system.

Ocwen acknowledged that it had sent improperly dated letters to 6,098 borrowers and is investigating whether it improperly dated other letters. It says it has commenced a comprehensive internal investigation related to these matters.

In our opinion, Ocwen has quality issues with its systems, internal controls, escalation process for self-reported issues, and change management process. We believe Ocwen no longer meets our criteria for an ABOVE AVERAGE servicer, because its internal practices and policies may not meet industry or regulatory standards, as per our criteria.

We will take further ranking actions as we consider appropriate based on our criteria.

We removed Ocwen from our Select Servicer List for all four residential servicer rankings. As per our criteria, a company will appear on Standard & Poor's Select Servicer List for an individual category and overall composite rankings if the servicer meets the minimum criteria for an AVERAGE ranking, with at least a stable outlook.

Key points:

  • Standard & Poor's Ratings Services lowered its prime, subprime, special, and subordinate-lien residential mortgage servicer rankings on Ocwen Loan Servicing LLC, and affirmed the negative outlook on all four rankings.
  • We have removed Ocwen from the Select Servicer List for these four rankings, per our criteria.
  • The downgrades of our four residential servicer rankings on Ocwen reflect increasing regulatory scrutiny over the company's servicing practices and our view of Ocwen's servicing processes and controls, which most recently included instances where Ocwen sent backdated letters to borrowers denying loan modifications.
  • We have had several discussions with Ocwen regarding the issues brought forth in the Oct. 21, 2014, New York Department of Financial Services (DFS) letter and related inquiries and believe that Ocwen may not demonstrate a level of internal controls that meet industry or regulatory standards, per our criteria.
  • Ocwen says it has commenced a comprehensive internal investigation related to these matters, and we will update our published rankings in accordance with our criteria, as more information becomes available.
  • Our negative outlook on Ocwen's residential servicer rankings reflects increasing regulatory pressure and the uncertainty that further examinations may uncover additional deficiencies in its business and servicing practices.


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