OREANDA-NEWS. Fitch Ratings has upgraded First Data Corp.'s (FDC) issue ratings for the senior secured revolving credit facility (RCF), term loans, and first lien notes to 'BB' with a Recovery Rating of 'RR1', from 'BB-\RR2' In addition Fitch affirmed the 'B' Issuer Default Ratings (IDRs). The Rating Outlook remains Stable. A full list of Fitch's ratings on FDC follows at the end of this release. At Dec. 31, 2014, the company had \$21 billion in total debt outstanding; of this amount, \$15.1 billion was secured, \$4 billion was senior unsecured, and \$1.6 billion was subordinated debt.

KEY RATING DRIVERS

-- Leveraged Capital Structure: The rating reflects FDC's highly leveraged capital structure. Fitch estimates current total and secured leverage of 7.8x and 5.7x, respectively. Fitch notes that leverage has materially declined from 10.6x in 2010 as a result of debt reduction and EBITDA growth. Debt reduction was driven largely by \$3.5 billion in equity private placement at First Data Holdings, Inc. (FDC's direct parent, HoldCo) in July 2014, of which \$2.2 billion was used to pay down debt at FDC (excluding \$214 million in call premiums). Remaining proceeds were used to pay down the 14.5% PIK notes at HoldCo, which as of December 2014, have been fully redeemed.

-- Large Operational Scale: The Merchant Solutions business is characterized by its large scale and global footprint with more than six million merchants. Existing merchant relationships and large distribution platform (alliances and partnerships) reinforce the company's ability to sustain its market share while providing a segue to introduce and capitalize on emerging technologies (i.e. Apple Pay, Clover, EMV, and Mobile Payments). The Financial Service business also benefits from this scale and established relationships with card issuers as well as from long-term contracts which have high switching costs.

-- Diversified Customer Base: The customer base is global in nature and consists primarily of millions of regional and local merchants and large financial institutions. Fitch notes, however, that FDC is exposed to price sensitive merchants within small and medium sized businesses that are more susceptible to down cycles.

-- Fee structure Offsets Cyclicality: Revenue has a correlation with consumer spending, but volatility is subdued in part due to exposure to consumer staples, pricing model (paid per transaction as well as on a percentage of transacted amount) in Merchant Solutions, and contractual nature of fees (based on activity level) in Financial Services.

-- Spending Shift: A mix shift in consumer spending patterns favoring large discount retailers that have more leverage to negotiate favorable fees has pressured profitability and revenue growth. Fitch notes that this is mitigated by increased spending online that can generate high fees due to the higher risk associated with the transaction.

-- Financial Industry Consolidation: Consolidation could pose a risk for the company, particularly in FDC's Financial Services segment, as could changes in regulations in FDC's overall business.

-- Emerging Competition: Despite the high barriers to entry, this factor could be eroded by the emergence of new payment technology in the Merchant Solutions segment. Niche-type competitors in the Financial Services segment could also adopt strategies to move upstream to challenge First Data's strong position in card processing for large institutions.

Liquidity as of Dec. 31, 2014 consisted of cash of \$358.4 million (net \$35 million excluding \$171 million held outside the U.S. and \$152 million cash held at subsidiaries to fund its respective operation). FDC's undrawn RCF provides an additional \$964 million (net \$9.6 million drawn and \$42.9 million in letters of credit outstanding) of liquidity that can be called upon. The RCF expires September 2016.

FDC's Recovery Ratings reflect Fitch's expectation that the enterprise value of the company and, hence, recovery rates for its creditors, will be maximized in a restructuring scenario (as a going concern) rather than in liquidation. Fitch estimates an adjusted, distressed enterprise valuation of approximately \$14.7 billion using a 7x multiple. The multiple considers FDC's prior trading multiple and that a stress event would likely lead to multiple contractions. As is standard with Fitch's recovery analysis, the revolver is fully drawn and cash balances fully depleted to reflect a stress event.

The 'RR1' Recovery Rating for the company's secured bank facilities and first lien secured notes reflects Fitch's belief that 91%-100% expected recovery is reasonable. The 'RR6' for the company's second lien notes, senior unsecured and senior subordinate notes reflects Fitch's belief that 0%-10% recovery is realistic.

RATING SENSITIVITIES

Positive Trigger: An explicit commitment by management to maintain leverage at or below 6x (gross leverage) could merit an upgrade consideration. Future developments that may lead to positive rating action include a greater visibility and confidence in the potential for the company to access the public equity markets with proceeds used to reduce debt outstanding.

Negative Trigger: The ratings could be downgraded if First Data were to experience erosion in its market share or if price compression accelerates due to new competitive threats leading to sustained EBITDA margins at approximately 20% or below with negative free cash flow (FCF) generation.

Fitch has upgraded the following ratings:

--Senior secured revolving credit facility and term loans to 'BB/RR1' from 'BB-/RR2';
--Senior secured notes to 'BB/RR1' from 'BB-/RR2'.

Fitch has affirmed other ratings as follows:

--Junior secured notes 'CCC+/RR6';
--Senior unsecured notes 'CCC+/RR6';
--Senior subordinated notes 'CCC/RR6'.

The Rating Outlook is Stable.