Uncategorized
A property and casualty play with less underwriting risk
admin | October 9, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
From an indexer’s perspective, the recent debt launch of Fidelity National Financial (FNF) provides the opportunity to gain exposure to a credit classified as property and casualty within the investment grade corporate index, but with a very unique risk profile relative to the rest of the peer group – one with lower tail risk and less possibility for unexpected catastrophe losses, which are inherent to many of the more traditional insurance underwriters.
Issue details
- FNF 3.40% 06/15/30 at 173 bp over 10-year Treasury; G+178; 2.52% yield; $107.35
- Issuer: Fidelity National Financial (FNF)
- CUSIP: 31620RAJ4
- Amount outstanding: $650 million
- Senior rating: Baa2/BBB/BBB, Global Issue
Exhibit 1: Comparison of property and casualty insurance sector spreads
Source: Bloomberg/TRACE g-spread indications, Amherst Pierpont Securities
Multiple debt issues improve liquidity profile
The FNF 3.40% of ’30 was launched in June and has since lost a bit of focus in the secondary market, as the issuer brought a second long 10-year note in mid-September of $600 million. Those FNF 2.45% ’32 came at a launch level of +180 bp and are now indicated closer to +175-to-180 bp, or a g-spread of 173 bp.
Both debt launches were executed in order to help clean up outstanding bridge financing, and improve the company’s liquidity profile. The term loan debt was related to FNF’s recently closed acquisition of FGL Holdings for $2.2 billion. They have $258 million in term loans due next year, and still have over $1.5 billion available to them on their credit facility. FNF has manageable near-term maturities with just $400 million due in 2022, and the next maturity is not until 2025. As of quarter-end at 6/30/20, following the first of the two debt launches, the cash balance was $2.3 billion, up from $1.4 billion as of year-end 2019.
Recent results beat expectations
As one of the national leaders in title insurance and related closing services, FNF’s business model and cash flows are more directly influenced by home closings and refinancing activity. The low rate environment and the Fed’s recent commitment to keep rates low for the foreseeable future present a favorable operating environment for the intermediate term. Furthermore, the ongoing trend of possible “urban flight” related to the pandemic in key metropolitan areas can also be viewed as favorable from an operating standpoint.
FNF reported adjusted EPS of $1.09, beating the $0.62 consensus estimate. Top-line revenue was up 13% year-over-year to $2.4 billion, well ahead of analysts’ expectations. Refinance volumes were up significantly over the prior year period. Meanwhile, F&G – which is a provider of fixed annuity products – saw record sales of $866 million in the second quarter despite a difficult operating environment.
FNF has $28 billion in total assets, with just under $26 billion in total cash and investments. Policy reserves sit at just under $18 billion as of the second quarter of 2020. The company reported total capital and surplus of $1.4 billion in 2Q20, and carried a risk-based capital ratio of over 900% as of year-end 2019.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2024 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
