The transaction is favorable to the credit profile; however, the current ratings reflect the company's elevated leverage, which remains high following this transaction. A full list of ratings follows at the end of this release.
FDC announced its plans to redeem
KEY RATING DRIVERS
From an operational perspective, Fitch believes core credit strengths include:
--Stable end-market demand with below-average susceptibility to economic cyclicality;
--A highly diversified, global and stable customer base consisting principally of millions of merchants and large financial institutions;
--A significant advantage in scale of operations and technological leadership which positively impact the company's ability to maintain its leading market share and act as barriers to entry to potential future competitors. In addition, FDC's FS business benefits from long-term customer contracts and generally high switching costs;
--Low working capital requirements typically enable a high conversion of EBITDA less cash interest expense into cash from operations.
Fitch believes credit concerns include:
--Mix shift in the Merchants Solution (MS) segment, including a shift in consumer spending patterns favoring large discount retailers, which has negatively affected profitability and revenue growth and could lead to greater than anticipated volatility in results;
--High fixed cost structure with significant operating leverage that drives profit volatility during business and economic cycles;
--Consolidation in the financial services industry and changes in regulations could continue to negatively impact results in the company's Financial Services (FS) segment;
--Potential for new competitive threats to emerge over the long term including new payment technology in the MS segment, the potential for a competitor to consolidate market share in the MS segment, and the potential for historically niche competitors in the FS segment to move upstream and challenge FDC's relative dominance in card processing for large financial institutions.
--A highly levered balance sheet that results in limited financial flexibility and reduces the company's ability to act strategically in a business that has historically benefited from consolidation opportunities.
Liquidity as of
Total debt as of
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
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 minimal recovery prospects in a distressed 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:
--If FDC were to experience sustained market share declines or if typical price compression accelerates;
--If the U.S. economy were to experience a sustained recession.
Fitch rates FDC as follows:
--Long-term IDR 'B';
--Senior secured revolving credit facility and term loans
--Senior secured notes 'BB-/RR2';
--Junior secured notes 'CCC+/RR6';
--Senior unsecured notes 'CCC+/RR6';
--Senior subordinated notes 'CCC/RR6'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Source: Fitch Ratings
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