Fitch Rates First Data's Proposed Senior Unsecured Note Offering 'CCC+/RR6'
NEW YORK -- March 26, 2013
Fitch Ratings has assigned a 'CCC+/RR6' rating to First Data Corp.'s (FDC)
proposed offering of $785 million in senior unsecured notes due 2021. Proceeds
from the offering will be used to refinance a portion of the company's $784
million in 9.875% Senior Unsecured Notes due 2015.
In conjunction with its offering, First Data announced that results for the
March 2013 quarter will likely be lower than the prior year results. The
company's measure of adjusted revenue is expected to be roughly flat with 2012
while EBITDA will likely decline by a mid-single digit percentage. The company
cited a warmer winter in 2012 as a factor in the relative decline as well as
an extra day in the prior year quarter resulting from the leap year.
KEY RATING DRIVERS
Fitch believes that the decline in business during the March quarter is not
completely unexpected as pressures had begun to show in the December 2012
quarter's results following 12 to 18 months of relative outperformance by the
company. First Data still believes that it can achieve its expected growth
targets in 2013. Fitch believes that short of a continued decline in the
business through the year, the fact that the company has essentially extended
its maturity wall to at least 2016 at this point gives it needed time to
revive growth. It is also important to note that First Data is heavily tied to
consumer spending which has been negatively impacted by higher taxes in 2013
but could benefit over the next few years if inflation picks up.
Fitch continues to rate FDC's IDR at 'B' with a Stable Outlook. Fitch revised
the outlook on FDC to Stable from Negative in January 2013 based on improved
operating results during 2012 as well as the extension and refinancing of a
significant majority of the company's previously forthcoming term loan
maturities in 2014. For a more detailed rationale behind the rating action,
please see the press release dated Jan. 8, 2013.
Liquidity as of Dec. 31, 2012 was solid with cash of $608 million ($324
million of which was available to the company in the US) and approximately
$1.5 billion available under a $1.52 billion senior unsecured revolving credit
facility, approximately $500 million of which expires September 2013 and the
rest expiring September 2016. Fitch does not expect the portion of the credit
facility expiring this year to be replaced.
Total debt as of December 31, 2012 was $23.0 billion, which includes
approximately $15.6 billion in secured debt, $4.5 billion in unsecured debt
and $2.5 billion in subordinated debt (all figures approximate). In addition,
a subsidiary of New Omaha Holdings L.P. (the direct parent company of First
Data Corp.) has outstanding $1.75 billion senior unsecured PIK notes due 2016.
These notes are not obligations of FDC and are not consolidated.
For an in-depth review of Fitch's credit analysis and outlook for FDC, please
see the report published June 6, 2012 below.
Fitch rates FDC as follows:
--Long-term IDR 'B';
--$499 million senior secured revolving credit facility expiring September
--$1.0 billion senior secured revolving credit facility expiring September
--$2.7 billion senior secured term loan B due 2017 'BB-/RR2';
--$258 million senior secured term loan B due 2018 'BB-/RR2';
--$750 million senior secured term loan B due 2018 'BB-/RR2';
--$4.7 billion senior secured term loan B due 2018 'BB-/RR2';
--$1.6 billion 7.375% senior secured notes due 2019 'BB-/RR2';
--$510 million 8.875% senior secured notes due 2020 'BB-/RR2';
--$2.2 billion 6.75% senior secured notes due 2020 'BB-/RR2';
--$2 billion 8.25% junior secured notes due 2021 'CCC+/RR6';
--$1 billion 8.75%/10.0% PIK Toggle junior secured notes due 2022 'CCC+/RR6';
--$784 million 9.875% senior unsecured notes due 2015 'CCC+/RR6';
--$785 million 11.25% senior unsecured notes due 2021 'CCC+/RR6';
--$3 billion 12.625% senior unsecured notes due 2021 'CCC+/RR6'; and
--$2.5 billion 11.25% senior subordinated notes due 2016 'CCC/RR6'.
The Rating Outlook is Stable.
The Recovery Ratings (RRs) for FDC reflect Fitch's recovery expectations under
a distressed scenario, as well as Fitch's expectation that the enterprise
value of FDC, and hence recovery rates for its creditors, will be maximized in
a restructuring scenario (as a going concern) rather than a liquidation
scenario. In deriving a distressed enterprise value, Fitch applies a 15%
discount to FDC's estimated operating EBITDA (adjusted for equity earnings in
affiliates) of approximately $2.4 billion for the LTM ended September 31, 2012
which is equivalent to Fitch's estimate of FDC's total interest expense and
maintenance capital spending. Fitch then applies a 6x distressed EBITDA
multiple, which considers FDC's prior public trading multiple and that a
stress event would likely lead to multiple contraction. As is standard with
Fitch's recovery analysis, the revolver is fully drawn and cash balances fully
depleted to reflect a stress event. The 'RR2' for FDC's secured bank facility
and senior secured notes reflects Fitch's belief that 71%-90% recovery is
realistic. The 'RR6' for FDC's second lien, senior and subordinated notes
reflects Fitch's belief that 0%-10% recovery is realistic. The 'CCC/RR6'
rating for the subordinated notes reflects the minimal recovery prospects and
inherent subordination in a recovery scenario.
Future developments that may, individually or collectively, lead to positive
rating action include:
--Greater visibility and confidence in the potential for the company to access
the public equity markets.
Future developments that may, individually or collectively, lead to negative
rating action include:
--The ratings could be downgraded if FDC were to experience sustained market
share declines or if typical price compression accelerates.
--The ratings could also be downgraded if the US economy were to experience a
Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
Applicable Criteria and Related Research:
--'Corporate Rating Methodology'(Aug. 8, 2012);
--'Evaluating Corporate Governance'(Dec. 12, 2012);
--'Rating Global Technology Companies Sector Credit Factors' (Aug. 9, 2012);
--U.S. Leveraged Finance Spotlight -- First Data Corporation' (June 6,2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
Evaluating Corporate Governance
U.S. Leveraged Finance Spotlight -- First Data Corporation
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Jason Paraschac, CFA, +1-212-908-0746
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Jamie Rizzo, CFA, +1-212-908-0548
Michael Paladino, CFA, +1-212-908-9113
Brian Bertsch, New York, +1-212-908-0549
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