Fitch Puts LandAmerica On Watch

Fitch Ratings has placed LandAmerica Financial Group and its insurance subsidiaries on “Rating Watch Negative” following LFG's recently announced plan to acquire Capital Title Group Inc. for $251 million.

The Negative Rating Watch, Fitch said, reflects ongoing concerns about LFG's ability to profitably execute its acquisition strategy.

Chicago-based Fitch said it is concerned about the size of the purchase price premium relative to reported book value given that the acquisition is being consummated at the peak of the real estate cycle. Another concern is that this transaction would significantly increase intangibles–especially given what Fitch said is LFG's historical and recent write-down of intangibles.

The rating firm also noted the “negative ramifications” the acquisition may have on what it said was LFG's already weakening balance sheet fundamentals.

It noted the $251 million purchase price is expected to be funded by 80 percent cash and 20 percent common equity. Half the cash is expected to be from internal sources and half from debt.

Based on current information, if the Rating Watch is resolved with a downgrade, Fitch does not believe the ratings will be downgraded more than one notch at the close of the acquisition.

Fitch said LFG is the third-largest provider of title insurance in the United States with a market share of approximately 18 percent. The organization has a strong market position in residential and commercial title insurance, and its title operations are well diversified geographically.

LFG, a publicly traded holding company, had GAAP assets and shareholder's equity of $3.9 billion and $1.3 billion, respectively, as of Dec. 31, 2005. It provides title insurance and real estate products in the U.S., Canada and the Caribbean.