Fitch Rates Western Union's $750MM Senior Unsecured Note Offering 'BBB+';
NEW YORK -- December 06, 2012
Fitch Ratings has assigned a 'BBB+' rating to The Western Union Company's
(Western Union) issuance of $250 million in 2.375% senior unsecured notes due
December 2015 and $500 million in 2.875% senior unsecured notes due December
2017. Proceeds from the offering are for general corporate purposes which
Fitch expects will include refinancing $300 million in notes due 2013 as well
as stock repurchases.
Fitch downgraded Western Union's Issuer Default Rating to 'BBB+' from 'A-'
with a Negative Outlook in November 2012 following third quarter earnings and
a reduced outlook for 2013. The Negative Outlook reflects Fitch's belief that
there is a significant increase in event risk due to a nearly 30% decline in
the stock price following the earnings release. Fitch estimates that Western
Union now trades at a forward enterprise value to EBITDA multiple of
approximately 6x. Fitch believes that this could lead to a potential third
party leveraging event, either in the form of an LBO or an activist investor
forcing a leveraged recapitalization of the company. Of note, Fitch believes
that the floating rate notes due March 2013, the 6.5% senior unsecured notes
due February 2014, the 3.65% senior unsecured notes due 2018 and the 6.2%
senior unsecured notes due June 2040 contain some form of a change of control
The ratings could be lowered if Western Union significantly increases leverage
to fund shareholder friendly actions or if EBITDA profit margins do not
rebound from the historically low levels expected in 2013. The ratings could
be stabilized if Western Union's pricing initiatives lead to material gains in
share and revenue growth as well as a rebound in the equity valuation of the
Credit strengths include:
--Extensive domestic and growing international agent network with a strong
--Revenue stability from strong global diversification and consumer exposure.
--An asset-light business model with a largely variable cost structure due to
the company's network of agents which generally own and operate the retail
Credit concerns include:
--The compliance risks associated with regulations governing Western Union's
business in numerous jurisdictions worldwide. The company recently received a
subpoena by the U.S. Attorney's Office in California related to an
investigation against a former Western Union agent. The company was also
notified that it is the subject of an investigation into structuring and money
laundering. It is not possible to estimate the potential liability, if any, to
the company from this action.
--New payment technologies could challenge traditional remittance services,
particularly if certain economies broadly adopt cashless payments; however,
this trend will likely take years to materially impact Western Union, if at
--Event risk dominated by shareholder friendly actions as the ratings
incorporate Fitch's expectation that Western Union will use the majority of
its excess free cash flow for stock buybacks and acquisitions.
--The risk of adverse political environments or legislation impacting
migration flows although this risk is mitigated by Western Union's broad
--Significant foreign currency exposure given broad international
diversification although natural hedges in the cost structure of the business
essentially protect profitability as a percentage of revenue.
--Longer-term, Western Union is likely to face increased competition from
regional and multi-national banks entering the remittance market. However,
Western Union's relatively unique customer base represents a potential asset
to financial institutions looking to offer traditional services to migrant
workers which the company may be able to monetize in the future.
Liquidity as of Sept. 30, 2012 was solid with cash of $1.4 billion and $1.5
billion available under a $1.65 billion senior unsecured revolving credit
facility, expiring January 2017, which fully supports Western Union's $1.5
billion 4(2) commercial paper program. In addition, free cash flow was
approximately $700 million over the latest 12 month period.
Total debt as of Sept. 30, 2012 was $3.4 billion consisting principally of
$150 million outstanding in commercial paper with an average term of one day;
$300 million in floating rate (L plus 58 basis points) notes due March 2013;
$500 million in 6.5% senior unsecured notes due February 2014; $1 billion in
5.93% senior unsecured notes due October 2016; $400 million in 3.65% senior
unsecured notes due August 2018, $325 million in 5.253% senior unsecured notes
due April 2020; $500 million in 6.2% senior unsecured notes due November 2036;
and $250 million in 6.2% senior unsecured notes due June 2040.
Fitch currently rates Western Union as follows:
--Senior unsecured notes 'BBB+';
--Senior unsecured credit facility 'BBB+';
--Short-term IDR 'F2'; and
--Commercial paper (CP) program 'F2'.
The Rating Outlook is Negative.
WHAT COULD TRIGGER A RATING ACTION
Future developments that may, individually or collectively, lead to negative
rating action include:
--A significant increase in leverage to fund shareholder friendly actions; or
--If EBITDA profit margins do not rebound from the historically low levels
expected in 2013.
Future developments that may, individually or collectively, lead to positive
rating action include:
--The current Rating Outlook is Negative. As a result, Fitch does not
currently anticipate developments with a material likelihood, individually or
collectively, leading to a rating upgrade.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', dated Aug. 8, 2012;
--'Evaluating Corporate Governance', dated Dec. 13, 2011;
--'Rating Technology Companies', dated Aug. 9, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Rating Technology Companies
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Jason Paraschac, CFA, +1-212-908-0746
One State Street Plaza
New York, NY 10004
Brain Taylor, CFA, +1-212-908-0620
Jason Pompeii, +1-312-368-3210
Brian Bertsch, New York, +1 212-908-0549
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