Moody's Upgrades First Data's (FDC) CFR to 'B2' Following IPO

Moody's Investors Service ("Moody's") upgraded First Data Corporation's (NYSE: FDC) Corporate Family ("CFR") and Probability of Default ("PDR") ratings to B2 and B2-PD from B3 and B3-PD, respectively, and subordinated notes rating to Caa1 from Caa2. In addition, Moody's confirmed the senior secured term loans and first lien notes at B1 and the second lien and unsecured notes at Caa1. Moody's also assigned a speculative grade liquidity ("SGL") rating of SGL-1. This action concludes the review for upgrade initiated on October 2, 2015 following First Data's launch of its initial public offering ("IPO"). The rating outlook is positive.

First Data has announced its intention to use net proceeds of approximately $2.5 billion from the IPO to redeem all of its $510 million of 11.25% senior unsecured notes due 2021 and about $1.6 billion of its 12.625% senior unsecured notes due 2021. With the underwriter's exercise of the over allotment of shares, First Data intends to repay an additional $350 million of the 12.625% notes.

RATINGS RATIONALE

The upgrade reflects Moody's view that First Data's adjusted debt leverage will improve to the low to mid 6 times level by the end of 2016 aided by IPO proceeds and mid-single digit percentage profit growth. With the debt repayment, interest expense will decrease by about $300 million annually with the opportunity for further interest savings with the refinancing of callable, high coupon debt over the next year. With lower interest and modestly improving profits, Moody's estimates that free cash flow will exceed $700 million in 2016.

The B2 CFR is supported by First Data's size, scale, and market position as the leading merchant acquirer in the U.S. Moody's expects First Data's profitability will benefit from sales and product investments for new payment solutions and data analytic offerings and the growth of credit card issuer processing. Cash flow will also improve from international expansion, where card usage penetration opportunities are greater than in the US. At the same time, the improved cash flow will still remain relatively light in relation to the very large debt total, with free cash flow to debt of about 4% at the end of 2016.

The positive outlook reflects Moody's expectation that First Data will continue to de-leverage its balance sheet over the next two years with adjusted debt to EBITDA decreasing to below 6 times through a combination of debt repayment and profit growth. Moody's expects First Data to generate low to mid-single digit percentage revenue growth with adjusted EBITDA approaching $3 billion by the end of 2016. Profitability should improve with lower interest expense from both debt repayment and future re-financings, operating leverage gained from higher transaction and card issuance volumes, and investments incurred earlier this year to expand the sales force and develop new product and service offerings.

The ratings could be upgraded if First Data were to achieve at least mid-single digit revenue and profit growth or further deleveraging through equity offerings, such that Moody's expects adjusted debt to EBITDA will decrease to the mid 5 times level and free cash flow to debt will exceed 5% on a sustained basis. The ratings could be lowered if revenue or profitability declines, free cash flow to debt approaches 1%, or First Data suffers a significant loss of market share due to emerging payment technologies. Downwards pressure could also arise if First Data were unable to make steady progress in extending its scheduled 2017 and 2018 debt maturities.

Ratings Upgraded:

..Issuer: First Data Corporation

.... Corporate Family Rating, B2 from B3

.... Probability of Default Rating, B2-PD from B3-PD

....Senior Subordinated Notes, Caa1 from Caa2

Ratings confirmed:

....Senior Secured Bank Credit Facilities, B1 (LGD3 from LGD2)

....Senior Secured First Lien Notes, B1 (LGD3 from LGD2)

....Senior Unsecured Second Lien Notes, Caa1 (LGD5 from LGD4)

....Senior Unsecured PIK Notes, Caa1 (LGD5 from LGD4)

....Senior Unsecured Notes, Caa1 (LGD6 from LGD5)

Rating assigned:

....Speculative Grade Liquidity Rating, SGL-1

Outlook Actions:

..Issuer: First Data Corporation

....Outlook, Positive

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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