OREANDA-NEWS. Fitch Ratings has upgraded First Data Corp.'s (FDC) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B'. The Rating Outlook remains Positive. A full list of ratings actions follows at the end of this release. At Dec. 31, 2016, the company had $18.6 billion in total debt outstanding.

The upgrade reflects Fitch's expectations that sustained EBITDA growth and continued debt reduction will drive FDC's gross leverage below 6.0x by the end of 2017; the Positive Outlook is based on expectations that metrics will reach the threshold for an upgrade to 'BB-' by the end of 2018. The action also reflects the company's strong FCF.

Fitch believes FDC's delevering path is sustainable based on moderate improvements in EBITDA and significant increases in free cash flow (FCF) through much lower cash interest costs. There are no significant debt maturities until 2020, mitigating potential near-term interest rate exposure.

KEY RATING DRIVERS

Positive Outlook: The upgrade and Positive Outlook reflect expectations for continued improvements in FDC's credit profile that began with its IPO in October 2015. FDC used the IPO proceeds to reduce debt. Subsequent refinancings have lowered cash interest expense, and the company's improved FCF profile has led to debt reduction.

Improved Credit Profile: Gross leverage was estimated to be 6.3x at Dec. 31, 2016 (includes Fitch estimates for certain items not yet disclosed), down from 7.4x on Dec. 31, 2015 and 7.8x at year-end 2014. Fitch estimates gross leverage could approximate 5.7x at the end of 2017 and further decline to approximately 5.0x at year-end 2018. Expectations for leverage sustained below this level would likely lead to an upgrade.

Large Scale: Fitch believes FDC's broad solution portfolio and significant geographic diversification are positive rating factors. The Global Business Solutions segment serves more than six million merchant locations globally. Existing relationships and a large distribution platform (partnerships and alliances) reinforce FDC's ability to sustain its market share, while providing a means to capitalize on emerging technologies (i. e. Apple Pay, Clover, EMV [Europay, Mastercard, Visa] and Mobile Payments). The Global Financial Solutions segment also benefits from established relationships with card issuers and from long-term contracts that have high switching costs.

Fee Structure Offsets Cyclicality: Revenue has a correlation with consumer spending, but volatility is subdued due to the continued adoption of electronic payments, exposure to consumer staples, the pricing model in Global Business Solutions (paid per transaction and on a percentage of transacted amount) and the contractual nature of fees in Global Financial Solutions (based on active cards on file and other activities).

Risk of Disintermediation: New payment technologies employed by other participants in the payment ecosystem are a long-term threat to disintermediate FDC. However, broad and diverse product portfolio, and investment in new technologies are mitigants. Mobile pay companies such as Google and Apple have decided to work with the payment networks and merchant acquirers rather than try and develop a proprietary system.

Consolidation Risks: Consolidation could pose a risk for FDC, particularly in the Global Financial Solutions segment, as could changes in regulations. Generally high barriers to entry in the Global Business Solutions segment are exposed to some erosion through the emergence of new payment technology. Conversely, the Global Financial Solutions segment has much lower exposure to emerging competitors due to FDC's strong position in card processing for large institutions.

KEY ASSUMPTIONS

--Revenue growth in the 2% to 3% range over 2017 - 2019, which includes some pressure from foreign exchange rates.

--EBITDA growth in the 4% to 6% range over 2017 - 2019, with growth toward the lower end of the range in 2017, and modestly accelerating with margin improvement;

--Sustained FCF of $1 billion or more aided by significantly lower cash interest expense arising from continued delevering and refinancing activities. FDC is assumed to reduce debt by approximately $1 billion or more annually;

--Continued nominal cash taxes over the forecast period given net operating loss carryforwards;

--Capital intensity approximating 5% of revenues;

--Fitch's recovery ratings assigned to the various debt classes are based upon assumed going concern EBITDA of $2.45 billion and a going concern enterprise valuation multiple of 7x.

RATING SENSITIVITIES

Positive: The ratings could be upgraded if FDC's credit profile continues to strengthen and gross leverage is expected to be maintained around 5x or below. Future developments that may lead to positive rating action include sustained EBITDA growth and continued reductions in debt from the company's improved FCF position.

Should FDC reduce senior secured debt as it delevers, there is the potential the unsecured debt could be upgraded prior to the upgrade of the IDR due to improved recoveries.

Negative: The ratings could be downgraded if FDC were to experience sustained leverage above 6.0x, material 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 the FCF margin declining to low single digits.

LIQUIDITY

To support liquidity, FDC has a $1.25 billion revolving credit facility (RCF) that expires in June 2020 (subject to an earlier springing maturity if certain debt remains outstanding at certain dates). At Dec. 31, 2016, the company had not drawn on the facility, but it would be reduced by letters of credit outstanding which have not yet been disclosed. At Sept. 30, 2016 there were $43 million in letters of credit outstanding. Cash at Dec. 31, 2016 was $385 million in total, the amount held outside of the U. S. has not been disclosed. Cash held domestically is likely to be nominal; as of Sept. 30, 2016 cash, net of $447 million held outside the U. S. and at subsidiaries to fund their respective operations consisted was $28.

Additional liquidity is available through a $240 million accounts receivable facility, which expires in 2019. There was $160 million outstanding on the accounts receivable facility at Dec. 31, 2016.

The company has no major maturities until 2019, when the accounts receivable facility, with a maximum borrowing capacity of $240 million, matures.

Fitch has upgraded the following ratings:

First Data Corp

--Long-Term IDR to 'B+' from 'B'; Outlook Positive;

--Senior secured RCF and term loans to 'BB+'/'RR1' from 'BB'/'RR1';

--Senior secured notes to 'BB+'/'RR1' from 'BB'/'RR1';

--Junior secured notes to 'BB'/'RR2' from 'B'/'RR4'

--Senior unsecured notes to 'B-'/'RR6' from 'CCC+'/'RR6'.