Fitch Affirms Fidelity National Financial's IFS Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Fidelity National Financial, Inc.'s (FNF) title insurance operating company Insurer Financial Strength (IFS) ratings of 'A-'. Fitch has also affirmed FNF's Issuer Default Rating (IDR) of 'BBB-' and senior unsecured debt of '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. Offsetting these positives though has been a history of periodic consolidated balance sheet financial leverage increases to fund acquisitions of ancillary businesses. While Fitch notes that past ventures have been successful, historical results do not mitigate future risks.

FNF's more aggressive holding company capital management, coupled with high 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 Sept. 30, 2015 was 30%; however, tangible financial leverage was 77%.

Fitch's ratings analysis considers both the two tracking stocks, FNF Core (Ticker: FNF NYSE) and FNF Financial Ventures (Ticker: FNFV NYSE). While we recognizes the tracking stock gives FNF's management the ability to streamline the organizational chart and lessen the volatility of title insurance operations 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 dominant position in title insurance accounting for approximately 32% of the U.S. title insurance market. 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 pretax operating margin of 9.7% as of Sept. 30, 2015.

As of Sept. 30, 2015, GAAP fixed charge coverage was 8x. Fitch anticipates modest improvement in the fixed charge coverage ratio as the company actively reduces its debt load.

Fidelity's title insurance operating subsidiaries have strong capitalization with statutory operating leverage of 2.5x as of year-end 2014 and a risk adjusted capital (RAC) score of 197%, both metrics are favorable relative to title insurer peers.

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; year-end 2014 debt/EBITDA was 2.8x.

--Significant improvement in tangible financial leverage.

--Sustained GAAP FCC ratio of 8.0x or higher.

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.

--Maintenance of GAAP operating margins at current levels that remain in the top tier versus industry norms.

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 4.25% convertible senior note maturing Aug. 15, 2018 at 'BB+';

--$300 million 6.6% senior note maturing May 15, 2017 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. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993804

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993804

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151111005879/en/

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jeremy Graczyk
Analyst
+1-312-368-3208
or
Committee Chairperson
Martha Butler, CFA
Senior Director
+1-312-368-3191
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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