OREANDA-NEWS. Fitch Ratings has assigned a 'BB/RR1' rating to First Data Corp.'s (FDC) senior secured term loans due 2022. FDC's Issuer Default Rating is 'B' with a Stable Outlook. At March 31, 2015, the company had \$21 billion in total debt outstanding.

FDC plans to enter into term loan facilities totalling \$750 million consisting of a USD term loan and a Euro term loan. Proceeds are expected to be used to pay down the 1st lien secured notes due 2019. The term loan has the same primary leverage covenant as the revolving credit facility due in June 2020 and other similar ancillary covenants.

KEY RATING DRIVERS

-- Leveraged Capital Structure: The rating reflects FDC's highly leveraged capital structure. As of March 31, 2015, total and secured leverage were 8.2x 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. 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, were 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 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 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. Conversely, the Financial Services 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 believes that primarily through EBITDA growth First Data's consolidated leverage will decline to approximately 7x by the end of 2017.

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 generation.

LIQUIDITY AND DEBT STRUCTURE

Liquidity as of March 31, 2015 consisted of cash of \$340 million (net \$43 million excluding \$148 million held outside the U.S. and \$149 million held at subsidiaries to fund their respective operations). Pro forma for the company's new revolving credit facility, as of March 31, 2015, FDC's RCF provided an additional \$827 million of liquidity (net of \$381 million drawn and \$42 million in letters of credit outstanding) that can be called upon.

With respect to the new RCF, in addition to 50 basis points (bps) reduction in the borrowing spread and reduced commitment fees, certain amendments were made to reduce incremental facilities, reduce the restricted payments basket, modify the equity cure right, reduce the letters of credit sublimit and modify the excess cash flow sweep.