Recently, Reuters reported that Fitch Ratings Inc. has affirmed
its Issuer Default Rating ("IDR") of 'BBB-' and the Insurer
Financial Strength ("IFS") of 'BBB+' on
Fidelity National Financial, Inc.
). It has also assigned a 'BB+' debt rating to the company's newly
issued senior notes. The outlook for all the ratings is stable.
The rating affirmations came on the back of the company's
leading position as the title insurer together with the prudent
handling of expenditure by the management team. It also reflects
the company's capability of earning profits under stiff economic
conditions and an unfavorable real estate market scenario coupled
with a better capital and a sound reserve position.
The current outlook is based on Fidelity National Financial's
better positioning compared to its peers with respect to operating
advantage. The company also awaits the collapse of "mortgage
originations" during the remaining period of this year as it will
prove to be a positive for the company and further enhance its
However, the rating agency continues to be concerned regarding
Fidelity National Financial's reluctance towards raising its
financial leverage to invest in inorganic expansion and the overall
capital management strategy. Also, these factors can mar the
overall effect of the positive attributes.
The company's financial leverage ratio and tangible financial
ratio stood at 19.3% and 30.7%, respectively, at the end of
second-quarter 2012. These ratios are subject to revision after the
adjustments made for the addition of the new loan in order to
offset another loan slated to mature during March next year.
Fitch may consider an upgrade in the ratings if capital
adequacy, as measured by the agency's Risk Adjusted Capital (RAC)
ratio, increases to roughly 150%. Also, an improvement in the
conventional operating metrics (including net leverage below 6.0x)
may trigger rating upgrades.
However, the ratings are subject to downgrades if the RAC falls
below 105%, net leverage exceeds 7.5x, financial leverage surges
beyond 30% and the reserves are not maintained adequately,
In a separate development, Standard & Poor's Ratings
Services ("S&P") has assigned its senior debt rating of 'BBB-'
on the company's recently issued secured notes. The ratings came on
the back of Fidelity National Financial's strong and competitive
market position, proper management of operations and efficiently
tackling the mortgage market activity partially neutralized by the
company's increased focus on the cyclical industry.
The S&P expects the total obligation to capital on a
pro-forma basis to exceed 27% and interest coverage ratio to be
Rating affirmations or upgrades from credit rating agencies play
an important part in retaining investor confidence in the stock as
well as maintaining creditworthiness in the market. We believe the
company's strong ratings scores will help it retain investor
confidence and write more businesses going forward, thereby
boosting its results.
Stewart Information Services Corporation
), which competes with Fidelity National Financial on the same
lines, also received a similar debt rating of 'BB+' from Fitch with
a stable outlook. Both Fidelity National Financial and Stewart
Information retain a Zacks #1 Rank, which translates into a
short-term Strong Buy rating.
FIDELITY NAT FI (FNF): Free Stock Analysis
STEWART INFO SV (STC): Free Stock Analysis
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