LandAm Downgraded Over Acquisition

Fitch Ratings is viewing LandAmerica Financial Group's acquisition of Capital Title Group in a negative light.The rating agency has downgraded the issuer default rating and senior debt rating of Richmond, Va.-based LandAmerica by one notch. The insurer financial strength ratings of several LandAmerica subsidiaries were downgraded one notch as well. "The downgrade reflects Fitch's ongoing concerns about LandAmerica's ability to profitably execute its acquisition strategy and the size of the purchase price premium relative to earnings and reported book value," Fitch said. "Further, the timing of the acquisition comes as the title insurance industry enters a downturn, and would weaken LandAmerica's balance sheet by adding to financial leverage and significantly increasing intangibles, which lowers the quality of capital. The $251 million purchase price appears high relative to Capital Title Group's annualized 2006 net earnings of $6.4 million and tangible stockholders' equity of $70 million. It should be noted, however, that Capital Title Group's earnings over the most recent four quarters was better, at $15 million." Fitch said the rating outlook for LandAmerica is stable.