NU Online News Service, May 19, 6:06 p.m. EDT--Fitch Ratings has put Fidelity National Financial, Inc. on a negative ratings watch as a result of its plans to spin off partially its title operations in the third quarter this year.
Fitch also expressed concern about plans for the new title insurance company to borrow $500 million from a new bank facility and pay a special dividend. "The Rating Watch primarily reflects the increased financial leverage at both the title insurance operations and in FNF overall," Fitch said in a prepared statement.
The restructuring announced yesterday follows the recent recapitalization of both FNF and its subsidiary, Fidelity National Information Services (FIS). In addition, 25 percent of FIS was sold to two institutional investors. The debt at FIS is not guaranteed by FNF, and thus is primarily rated on its own strength and weaknesses.
Fitch said it plans to review this transaction with management in the near term. "Resolution of the rating watch will be based on management's plans regarding financial leverage on a consolidated basis and title insurance-only basis," the statement said.
The firm added that, "If the new company is determined to maintain financial leverage in the mid-20s or lower, assuming no material change in overall financial leverage, then the ratings will likely be affirmed at the current level."
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