Fitch Rates Western Union's Proposed Senior Unsecured Notes 'BBB+'.NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch has assigned a 'BBB+' rating to Western Union's proposed offering of up to $2 billion in combined floating-rate notes due 2008 as well as fixed-rate notes due 2011 and 2036. Western Union expects to use the proceeds of this offering to redeem a substantial portion of its $2.4 billion bridge loan stemming from the company's recent spin off from First Data Corp. (rated 'A', with a Stable Outlook by Fitch).
Fitch continues to rate Western Union as follows:
--Issuer default rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) 'BBB+';
--Senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. 'BBB+';
--Senior unsecured credit facility 'BBB+'.
--Commercial paper (CP) program 'F2'
The Rating Outlook is Stable.
Western Union's long-term ratings are supported by the company's:
--Extensive domestic and growing international agent network;
--Strong worldwide brand;
--Solid profit margins due to economies of scale, reflecting the company's significant size and market position;
--Consistent free cash flow;
--Solid liquidity and financial flexibility.
Fitch's rating concerns center on:
--Pressured operating margins due to strong competition in the payment services market from large international banks, as well as smaller, geographically concentrated niche competitors;
--Slightly pressured free cash flow due to higher capital spending capital spending
Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. requirements that Fitch attributes mostly to increased agent bonuses;
--Uncertainty regarding the long-term impact of immigration immigration, entrance of a person (an alien) into a new country for the purpose of establishing permanent residence. Motives for immigration, like those for migration generally, are often economic, although religious or political factors may be very important. legislation in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. on Western Union;
--Industry risk of incremental Additional or increased growth, bulk, quantity, number, or value; enlarged.
Incremental cost is additional or increased cost of an item or service apart from its actual cost. expenses or business disruptions associated with the heightened worldwide regulatory environment in which Western Union and its agents operate;
--Acquisition risk and potential for more aggressive shareholder-friendly activities.
Western Union's liquidity as of Sept. 30, 2006 was solid and consisted of: $1.3 billion in cash and equivalents; and a $1.5 billion revolving credit Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility expiring September 2011, of which approximately $1.4 billion was available to the company. Also, on Nov. 6, 2006, Western Union initiated a $1.5 billion 4(2) commercial paper program. Free cash flow has averaged approximately $800 million annually for the past three years. Fitch expects free cash flow to trend below historical levels through at least 2007 due to higher capital spending and lower margin trends; however, free cash flow should remain consistently above $500 million annually over the next several years. Although Fitch believes Western Union is likely to utilize a portion of its free cash flow for debt reduction in the near term, the company's longer-term focus is anticipated to be acquisitions and share repurchases.
Total debt as of Sept. 30, 2006 was $3.5 billion and consisted of: $100 million drawn from a $1.5 billion revolving credit facility expiring September 2011; a $2.4 billion bridge loan expiring September 2007; and $1.0 billion in 5.93% senior unsecured notes due 2016. Fitch expects Western Union to repay the bridge loan in the near term through a combination of the proceeds from its proposed $2 billion senior unsecured notes offering, its CP program, and free cash flow.
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