Fitch Downgrades LandAmerica's IFS to 'BB'; on Watch Negative

Fitch's rating action follows Fidelity National Financial's (FNF) announcement that it will not acquire LFG as previously planned after finishing its due diligence. Further, Fitch's downgrade considers LFG's deteriorating financial condition, constrained liquidity and consequences from not meeting the renegotiated covenants of its credit agreements.

LFG's stockholders' equity fell by more than one-half in the third quarter to $485 million at the close of the third quarter 2008. Consequently, financial leverage is high at greater than 50% as of Sept. 30, 2008. Significant contributors to LFG's year-to-date $674 million net loss include: a $225 million write-off of goodwill, a $90 million reserve strengthening and a $275 million provision taken against LFG's deferred income tax assets.

The goodwill impairment applied to both title operations and lender services business segments following an annual testing of goodwill balances. The impairment testing is not complete and consequently, additional charges may be taken during the fourth quarter of 2008. As of Sept. 30, 2008, goodwill balances were $615 million, resulting in negative tangible equity of at least $130 million before considering other intangible assets.

LFG faces serious liquidity constraints now that the acquisition plans have fallen through. Specifically, LFG has approximately $290 million invested in auction-rate securities (ARS) as part of its 1031 exchange business that currently cannot be accessed. The illiquidity of LFG's ARS could result in losses as the company liquidates other investment securities to meet cash needs. It is unclear at this time if the State of Nebraska Department of Insurance will allow LFG to trade ARS for more liquid investments at the title underwriting subsidiaries.

Following a renegotiation of covenants on $250 million of bank debt, LFG was not in compliance as of the end of third quarter-2008. Consequently, in the absence of a new agreement, the borrowed money would be due immediately. Currently, LFG is unable to access the $50 million remaining under its bank line of credit.

Lastly, Fitch estimates consolidated statutory surplus at the title underwriting subsidiaries to be $300 million as of Sept. 30, 2008, down from $426 million at year-end 2007. Surplus has been depleted by operating losses and dividends to the holding company and consequently, Fitch's estimate of LFG's risk-adjusted capital ratio is substantially below 100%. The new 'BB' insurer financial strength ratings reflect the potential vulnerability of the insurers' obligations.

Fitch has downgraded the following ratings and placed them on Rating Watch Negative:

LandAmerica Financial Group, Inc.

--Long-term IDR to 'B' from 'BBB-';

--Senior debt to 'B-/RR5' from 'BB+'.

Commonwealth Land Title Insurance Company

Commonwealth Land Title Insurance Company of New Jersey

Land Title Insurance Company of Pasadena

Lawyers Title Insurance Corporation

Title Insurance Company of America

Transnation Title Insurance Company

--IFS to 'BB' from 'BBB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

Fitch Ratings, Chicago Douglas M. Pawlowski, CFA, 312-368-2054 Gerald B. Glombicki, 312-606-2354 or Media Relations: Tyrene Frederick-Mack, 212-908-0540, New York Email: tyrene.frederick-mack@fitchratings.com