First American Corp. Senior Debt Assigned 'BBB' Rating

Apr 27, 2001, 01:00 ET from Standard & Poor's

    NEW YORK, April 27 /PRNewswire/ -- Standard & Poor's today assigned its
 triple-'B' senior debt rating to the $175 million ($210 million with over
 allotment), seven-year convertible senior debentures to be issued by First
 American Corp. (FAF).
     At the same time, Standard & Poor's affirmed its triple-'B' counterparty
 credit and senior debt ratings and its double-'B'-plus preferred stock rating
 on FAF.  The outlook remains negative.
     The ratings reflect FAF's strained financial flexibility for the rating
 categories assigned, increased debt service requirements, and the operational
 uncertainty associated with its active growth strategy.  Offsetting these
 concerns are FAF's good earnings diversification and established position in
 the U.S. title insurance market.
     Expectations are that the proceeds received from this offering will be
 used to initially repay existing debt and to buy out existing minority
 interests.  The remainder will be held at the operating company level for
 general corporate purposes and future strategic endeavors.
 
     Major Rating Factors:
 
     -- Strong financial flexibility. As of year-end 2000, with the
        $175 million convertible senior debentures included, FAF's pro forma
        debt-to-total-capital ratio was 26.7%, and
        debt-plus-preferred-to-total-capital ratio was 33.4%.  GAAP interest
        charge (on an EBITDA basis) was strong at 8.0 times (x); however, fixed
        charge coverage was low at 3.9x.
     -- Good earnings diversification. FAF's noninterest-sensitive customer
        services segment accounted for roughly 19% ($35.2 million) of GAAP
        pretax earnings for 2000, and should provide prospective stability to
        FAF's title earnings fluctuation during interest rate or real estate
        market downturns.
     -- Strong market position.  FAF's core operating subsidiary, First
        American Title Insurance Co. (FATICO), maintained a 21.5% national
        market share based on direct title writings, and is the second largest
        out of the top five title insurers based on 1999 market data.  Since
        1995, FATICO has grown its market position through acquisitions, an
        enhanced presence within the U.S. Eastern and Midwestern markets, and
        an increasing agency force.
     -- Good operational results.  For 2000, FAF's combined ratio of 92.7%
        (including an expense ratio of 87.8%) bettered most of its main peers;
        however, its ROR of 5.2% remains modest because of increased loss
        payments and acquisition-related expenditures.
     -- Industry risk.  Standard & Poor's believes that because FAF's earnings
        structure is so influenced by the general volatility of interest rate
        and real estate market movements, FAF's prospective business mix and
        earnings capacity could be tempered by economic factors, client demand,
        and competitive title and mortgage market conditions.
 
     OUTLOOK: NEGATIVE
     FAF's financial flexibility is expected to improve to levels more
 indicative of the rating assigned, and its interest and fixed-coverage ratios
 are expected to improve modestly.  Expectations are that benefits derived from
 past strategic endeavors will contribute to both FAF's operational and
 earnings growths, and that its expense ratio will be between 89%-92%, based on
 ROR between 5%-7% in 2001.  Without an economic downturn, FAF's financial
 flexibility will remain strong with a debt-to-capital ratio below 20%, and a
 debt-plus-preferred-to-capital ratio at about 25%.  FAF's interest coverage is
 expected to be around 10x, while fixed-charge coverage is to be between 5x-7x,
 Standard & Poor's said. -- CreditWire
 
 

SOURCE Standard & Poor's
    NEW YORK, April 27 /PRNewswire/ -- Standard & Poor's today assigned its
 triple-'B' senior debt rating to the $175 million ($210 million with over
 allotment), seven-year convertible senior debentures to be issued by First
 American Corp. (FAF).
     At the same time, Standard & Poor's affirmed its triple-'B' counterparty
 credit and senior debt ratings and its double-'B'-plus preferred stock rating
 on FAF.  The outlook remains negative.
     The ratings reflect FAF's strained financial flexibility for the rating
 categories assigned, increased debt service requirements, and the operational
 uncertainty associated with its active growth strategy.  Offsetting these
 concerns are FAF's good earnings diversification and established position in
 the U.S. title insurance market.
     Expectations are that the proceeds received from this offering will be
 used to initially repay existing debt and to buy out existing minority
 interests.  The remainder will be held at the operating company level for
 general corporate purposes and future strategic endeavors.
 
     Major Rating Factors:
 
     -- Strong financial flexibility. As of year-end 2000, with the
        $175 million convertible senior debentures included, FAF's pro forma
        debt-to-total-capital ratio was 26.7%, and
        debt-plus-preferred-to-total-capital ratio was 33.4%.  GAAP interest
        charge (on an EBITDA basis) was strong at 8.0 times (x); however, fixed
        charge coverage was low at 3.9x.
     -- Good earnings diversification. FAF's noninterest-sensitive customer
        services segment accounted for roughly 19% ($35.2 million) of GAAP
        pretax earnings for 2000, and should provide prospective stability to
        FAF's title earnings fluctuation during interest rate or real estate
        market downturns.
     -- Strong market position.  FAF's core operating subsidiary, First
        American Title Insurance Co. (FATICO), maintained a 21.5% national
        market share based on direct title writings, and is the second largest
        out of the top five title insurers based on 1999 market data.  Since
        1995, FATICO has grown its market position through acquisitions, an
        enhanced presence within the U.S. Eastern and Midwestern markets, and
        an increasing agency force.
     -- Good operational results.  For 2000, FAF's combined ratio of 92.7%
        (including an expense ratio of 87.8%) bettered most of its main peers;
        however, its ROR of 5.2% remains modest because of increased loss
        payments and acquisition-related expenditures.
     -- Industry risk.  Standard & Poor's believes that because FAF's earnings
        structure is so influenced by the general volatility of interest rate
        and real estate market movements, FAF's prospective business mix and
        earnings capacity could be tempered by economic factors, client demand,
        and competitive title and mortgage market conditions.
 
     OUTLOOK: NEGATIVE
     FAF's financial flexibility is expected to improve to levels more
 indicative of the rating assigned, and its interest and fixed-coverage ratios
 are expected to improve modestly.  Expectations are that benefits derived from
 past strategic endeavors will contribute to both FAF's operational and
 earnings growths, and that its expense ratio will be between 89%-92%, based on
 ROR between 5%-7% in 2001.  Without an economic downturn, FAF's financial
 flexibility will remain strong with a debt-to-capital ratio below 20%, and a
 debt-plus-preferred-to-capital ratio at about 25%.  FAF's interest coverage is
 expected to be around 10x, while fixed-charge coverage is to be between 5x-7x,
 Standard & Poor's said. -- CreditWire
 
 SOURCE  Standard & Poor's