Fitch Maintains 'BB/RR1' Rating on First Data's Secured Revolving Credit Facility

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings will maintain the 'BB/RR1' issue rating on First Data Corp.'s (FDC) amended and restated senior secured revolving credit facility (RCF). FDC's Issuer Default Rating is 'B' with a Stable Outlook. At March 31, 2015, the company had $21 billion in total debt outstanding.

The new $1.25 billion RCF expires in June 2020, subject to certain provisions, and replaces the existing approximately $1 billion RCF expiring in September 2016. Under certain provisions, the new RCF matures in December 2016, December 2017 and June 2018 if on such dates more than $750 million on the 2017 term loan, more than $750 million on the 2018 new term loan and more than $750 million on the 2018B second new term loans is outstanding, respectively, and March 2019 to the extent more than $750 million in principal amount is outstanding with respect to the senior secured 2019 notes. Pricing for the new RCF is Libor plus 350 basis points (bps), or 50 bps lower than the previous RCF.

KEY RATING DRIVERS

-- Leveraged Capital Structure: The rating reflects FDC's highly leveraged capital structure. As of March 31, 2015, total and secured leverage were 8.2x and 5.8x, respectively. Fitch notes that leverage has materially declined from 10.6x in 2010 as a result of debt reduction and EBITDA growth. Debt reduction was driven largely by $3.5 billion in equity private placement at First Data Holdings, Inc. (FDC's direct parent, HoldCo) in July 2014, of which $2.2 billion was used to pay down debt at FDC (excluding $214 million in call premiums). Remaining proceeds were used to pay down the 14.5% PIK notes at HoldCo, which as of December 2014, were fully redeemed.

-- Large Operational Scale: The Merchant Solutions business is characterized by its large scale and global footprint with more than six million merchants. Existing merchant relationships and large distribution platform (alliances and partnerships) reinforce the company's ability to sustain its market share while providing a segue to introduce and capitalize on emerging technologies (i.e. Apple Pay, Clover, EMV, and Mobile Payments). The Financial Service business also benefits from this scale and established relationships with card issuers as well as from long-term contracts which have high switching costs.

-- Diversified Customer Base: The customer base is global in nature and consists primarily of millions of regional and local merchants and large financial institutions. Fitch notes, however, that FDC is exposed to price sensitive merchants within small- and medium-sized businesses that are more susceptible to down cycles.

-- Fee structure Offsets Cyclicality: Revenue has a correlation with consumer spending, but volatility is subdued in part due to exposure to consumer staples, pricing model (paid per transaction as well as on a percentage of transacted amount) in Merchant Solutions, and contractual nature of fees (based on activity level) in Financial Services.

-- Spending Shift: A mix shift in consumer spending patterns favoring large discount retailers that have more leverage to negotiate favorable fees has pressured profitability and revenue growth. Fitch notes that this is mitigated by increased spending online that can generate high fees due to the higher risk associated with the transaction.

-- Financial Industry Consolidation: Consolidation could pose a risk for the company, particularly in FDC's Financial Services segment, as could changes in regulations in FDC's overall business.

-- Emerging Competition: Despite the high barriers to entry, this factor could be eroded by the emergence of new payment technology in the Merchant Solutions segment. Niche-type competitors in the Financial Services segment could also adopt strategies to move upstream to challenge First Data's strong position in card processing for large institutions.

Liquidity as of March 31, 2015 consisted of cash of $340 million (net $43 million excluding $148 million held outside the U.S. and $149 million held at subsidiaries to fund their respective operations). Pro forma for the new facility, as of March 31, 2015, FDC's RCF provided an additional $827 million of liquidity (net of $381 million drawn and $42 million in letters of credit outstanding) that can be called upon.

With respect to the new RCF, in addition to reduced commitment fees, certain amendments were made to reduce incremental facilities, reduce the restricted payments basket, modify the equity cure right, reduce the letters of credit sublimit and modify the excess cash flow sweep.

RATING SENSITIVITIES

Positive Trigger: An explicit commitment by management to maintain leverage at or below 6x (gross leverage) could merit an upgrade consideration. Future developments that may lead to positive rating action include a greater visibility and confidence in the potential for the company to access the public equity markets with proceeds used to reduce debt outstanding.

Negative Trigger: The ratings could be downgraded if First Data were to experience erosion in its market share or if price compression accelerates due to new competitive threats leading to sustained EBITDA margins at approximately 20% or below with negative free cash flow generation.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 19, 2013).

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage [749393 - 28-MAY-2014] (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers [813588 - 18-NOV-2014] (pub. 18 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813588

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/20150603006055/en/

Fitch Ratings
Primary Analyst
John Culver, CFA
Senior Director
+1-312-368-3216
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Brian Yoo, CFA
Associate Director
+1-212-908-0175
or
Committee Chairperson
Shalini Mahajan
Managing Director
+1-212-908-0351
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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