OREANDA-NEWS. Fitch Ratings has affirmed First Data Corp.'s (FDC) Issuer Default Rating at 'B'. The Rating Outlook remains Positive. A full list of ratings follows at the end of this release. At Sept. 30, 2015, the company had $21 billion in total debt outstanding.

FDC will repay all or a portion of its outstanding senior secured term loans due 2017 with proceeds from incremental term loans with face amounts of $750 million and EUR200 million under its senior secured term loan facility due July 10, 2022 which Fitch rates 'BB/RR1'. The term loans have the same primary leverage covenant as the revolving credit facility due in June 2020 and other similar ancillary covenants.

In addition, Fitch has assigned a 'BB/RR1' rating to FDC's offering of $750 million senior secured 1st lien notes due 2024.

Fitch has also upgraded the ratings assigned to FDC's senior secured 2nd lien notes to 'B/RR4' from 'CCC+/RR6' and has assigned a 'B/RR4' rating to the offering of $750 million senior secured 2nd lien notes due 2024.

Proceeds from the senior secured 1st and 2nd lien note offerings are expected to be used to redeem all $1 billion of the 8.75% senior secured 2nd lien notes due 2021 and a portion of the 8.25% senior secured 2nd lien notes due 2021, and related fees and expenses.

KEY RATING DRIVERS

--The Positive Outlook reflects First Data's completion of an IPO on Oct. 15, and expectations that net proceeds of approximately $2.8 billion will be used to reduce debt.

--Improved Credit Profile: Pro forma for the post-IPO debt reduction, Fitch estimates total leverage was 7.1x at Sept. 30, 2015, and that leverage could be under 6x at the end of 2017. As previously disclosed, Fitch believes expectations for leverage under 6x would likely lead to an upgrade. Fitch expects free cash flow (FCF) to improve materially following the debt reduction and through debt refinancings in 2015 and potential future refinancings.

--Leveraged Capital Structure: The current rating reflects FDC's highly leveraged capital structure. As of Sept. 30, 2015, total and secured leverage were 7.9x and 5.8x, respectively. Fitch notes that leverage has materially declined from 10.6x in 2010 as a result of debt reduction and EBITDA growth.

--Large Operational Scale: The Global Business Solutions business is characterized by its large scale and global footprint with more than six million merchant locations. Existing merchant relationships and large distribution platform (alliances and partnerships) reinforce the company's ability to sustain its market share while providing a pathway to introduce and capitalize on emerging technologies (i.e. Apple Pay, Clover, EMV, and Mobile Payments). The Global Financial Solutions 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 due to the continued adoption of electronic payments, exposure to consumer staples, pricing model (paid per transaction as well as on a percentage of transacted amount) in Global Business Solutions, and contractual nature of fees (based on activity level) in Global Financial Solutions.

--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 Global Financial Solutions segment, as could changes in regulations in First Data's overall business.

--Emerging Competition: The high barriers to entry could be eroded by the emergence of new payment technology in the Global Business Solutions segment. Conversely, the Global Financial Solutions segment has much lower exposure to emerging competitors due to First Data's strong position in card processing for large institutions.

KEY ASSUMPTIONS

--Fitch assumes revenues will grow in the low- to mid-single digits over the near term, and that First Data's EBITDA margin will be relatively stable in the 24% to 25% range. Fitch's assumptions for the EBITDA margin are based on gross revenues, which include material reimbursable expenses.

--Fitch believes that through EBITDA growth and debt reduction First Data's consolidated leverage will decline to approximately 5.9x by the end of 2017.

--Fitch's recovery ratings assigned to the various debt classes are based upon assumed going concern EBITDA of $2.4 billion and a going concern enterprise valuation of 7x.

RATING SENSITIVITIES

Positive Trigger: The ratings could be upgraded if First Data's credit profile continues to strengthen, and leverage is expected to be maintained at or below 6x (gross leverage). Future developments that may lead to positive rating action include sustained EBITDA growth and reductions in debt from the company's improved free cash flow position.

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 generation.

LIQUIDITY AND DEBT STRUCTURE

Liquidity as of June 30, 2015 (First Data's most recent Form 10-Q filing) consisted of $348 million in cash (net $92 million in amounts held outside the U.S. and at subsidiaries to fund their respective operations). First Data also 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). As of June 30, 2015, First Data's RCF provided an additional approximately $1 billion of liquidity (net of $204 million drawn and $41 million in letters of credit outstanding).

Fitch has affirmed the following ratings and maintains the Positive Outlook on the IDR:

--IDR at 'B'; Outlook Positive;
--Senior secured RCF and term loans at 'BB/RR1';
--Senior secured notes at 'BB/RR1';
--Senior unsecured notes at 'CCC+/RR6';
--Senior subordinated notes at 'CCC/RR6'.

Fitch has upgraded the following ratings:
--Junior secured notes to 'B/RR4' from 'CCC+/RR6'.