March 1 - Fitch Ratings has affirmed the ratings for Fidelity National Information Services, Inc. (FIS) including its Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook is Stable. KEY RATING DRIVERS: FIS has adopted a more conservative approach to capital allocation in recent years as its business strategy has moved beyond its acquisition growth phase. Historically the company actively pursued debt-financed acquisitions in addition to a large debt-financed share repurchase in 2010. Going forward, Fitch believes that acquisitions will be limited to small niche additions to the business and funded by cash from operations. Fitch expects that FIS will continue to focus on shareholder returns but that share repurchases will not result in significant leveraging events beyond levels contemplated in the rating. Fitch estimates leverage (total debt / operating EBITDA) at 2.4x (or 2.7x when adjusted for operating leases). Fitch would expect leverage to remain near 2.5x given the current rating category with the potential for modest temporary spikes. Alternatively, free cash flow before dividends would be expected to remain above 10% of total adjusted debt (14.8% currently). FIS' strong free cash flow profile in recent years could be supportive of positive rating action although the company's meaningful dividend policy at least partially negates that credit strength. FIS' ratings are supported by many qualitative factors which also drive significant event risk. Specifically, FIS competes in a relatively stable market with high barriers to entry, significant recurring revenue and long-term contracts. The company's strong profitability (EBITDA margins of 30% in 2012) and free cash flow generation are evidence of this position in the marketplace. The company has in the past viewed these characteristics as a platform for leveraging events and has also been the target of prior leveraged buyout inquiries. Fitch believes that a leveraged recap or leveraged buyout event remains the biggest risk for the credit. However, a more conservative approach to capital allocation from management and recent significant increase in the dividend rate, Fitch believes, reduces the probability of such an event. While higher dividends are not generally considered credit friendly, Fitch believes that for FIS, this should reduce the potential for activist shareholder pressure in the future. FIS' annual dividend was raised from $0.20 per share to $0.80 per share in January 2012 and $0.88 per share for 2013. This represents a 2.4% dividend yield based on the current stock price. Fitch believes this dividend level should support the stock in the future, which would in theory partially mitigate shareholder interest in increasing leverage at the company. Of note, FIS' bank loans and credit facility, which were previously secured, became unsecured when the company attained an investment grade rating in 2012. Rating strengths include: --Stable end-demand; --Strong diversification, with increasing international diversification, although highly dependent on small- and mid-tier banks; --High switching costs. Rating concerns include: --History of debt M&A and shareholder-friendly actions; --High fixed-cost business; --Potential regulatory changes; --Increasing competition from non-traditional competitors such as IBM and Oracle, which have greater resources. Liquidity as of Dec. 31, 2012 was solid with cash of $518 million and $1 billion available under a $1.15 billion senior unsecured revolving credit facility, expiring March 2017. Additionally, free cash flow has averaged near $700 million annually over the past three years. Total debt as of Dec. 31, 2012 was $4.4 billion. In January 2013, FIS repaid its $250 million unsecured term loan maturing 2014 with borrowings from its revolving credit facility. Pro forma for this action, the debt balance consisted principally of the following: --$376 million outstanding under the aforementioned senior unsecured revolving credit facility (reducing availability to $773 million); --$2 billion outstanding under senior unsecured term loan-A maturing March 2017; --$750 million in 7.625% senior unsecured notes due July 2017; --$500 million in 7.875% senior unsecured notes due July 2020; --$700 million in 5.0% senior unsecured notes due March 2022. Fitch has affirmed the following ratings for FIS: --IDR at 'BBB-'; --Senior unsecured revolving credit facility at 'BBB-'; --Senior unsecured term loans at 'BBB-'; --Senior unsecured notes at 'BBB-'. The Rating Outlook is Stable. RATING SENSITIVITIES: Positive: Future developments that may, individually or collectively, lead to positive rating action include: --Continued growth in the business driven by cross-selling of products and services across the domestic customer base, which increases FIS' value to customers, as well as growth in the international business which provides further diversification. --Continued moderation of debt-financed acquisitions and share repurchases coupled with management's commitment to maintain a reasonably conservative capital structure. Negative: Future developments that may, individually or collectively, lead to negative rating action include: --More aggressive capital distribution to shareholders, particularly if these actions are in response to changes in equity valuation; --Significant changes to the structure of the financial services sector that could lead to the loss or consolidation of a significant portion of FIS' customer base.