Fidelity Taking Step Toward Spin Off of Title Insurance Division.

Jacksonville, FL -- While investors had a positive reaction when they first heard about Fidelity National Financial here spinning off its title business, at least one rating agency is taking a wait-and-see attitude.

Fidelity executives said they plan to offer 17.5% of a new Title Holding Co. to its current stockholders. FNF will retain the remaining portion of THC.

As part of the transaction, THC will be borrowing $500 million to pay a dividend to FNF prior to the spin-off. Furthermore, THC will issue a $250 million inter-company note that is payable to FNF. The terms of the note mirror those of a $250 million debenture issued by FNF when it acquired Chicago Title.

Fitch has placed FNF on rating watch negative, in part because of management's borrowing of money for this transaction, said analyst Peter Patrino. The move reflects increased financial leverage at both the title insurance level and the overall company level.

Fitch's statement said the rating agency "views FNF's ratings and the title operations segregated from information services to determine FNF-only leverage and coverage that is supportive of the current ratings. There is also consideration for overall financial leverage. While Fitch believes the partial spin-off of the title operations does not change this view, the concern primarily resides with the non-FIS entities increasing willingness to leverage the consolidated balance sheet."

Mr. Patrino said that after meeting with FNF, the future ratings decision would be based on management's plans regarding financial leverage on a consolidated basis and on a standalone title insurance basis.

The rating announcement added that if THC keeps financial leverage in the mid-20s or lower, assuming no material change in overall financial leverage, then the ratings are likely to be affirmed at their current level.